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ACCOUNTING  PROBLEMS: 
INTERMEDIATE 


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J^Qraw^O-lill Book  Gx  Jne. 

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ACCOUNTING  PROBLEMS 
INTERMEDIATE 


BY 

CHARLES  F.  RITTENHOUSE,  B.  C.  S.,  C.  P.  A. 

PROFESSOR  OF  ACCOUNTING,  BOSTON  UNIVER8ITT  COLLEGE  OF 
BUSINESS  ADMINISTRATION 

AND 

ATLEE  L.  PERCY,  A.  B.,  B.  B.  A.,  C.  P.  A. 

ASSOCIATE  PROFESSOR  OF  ACCOUNTING,  BOSTON  UNIVERSITY  COLLEGE  OP 
BUSINESS  ADMINISTRATION 


First  Edition 


McGRAW-HILL  BOOK  COMPANY,  Inc. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON:  6  &  8  BOUVERIE  ST.,  E.  C.  4 

1922 


71767 


Copyright,  1922,  by  the 
McGraw-Hill  Book  Company,  Inc. 


WASHINGTON  MONOTYPE  COMPOSITION  COMPANY,  WASHINGTON,  D.  C. 


idhrary 

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serrZ 

PREFACE 

This  book  of  exercises  in  accounting  is  the  result  of  work  by 
the  authors  extending  over  several  years  in  collecting  and  pre- 
paring problems  and  exercises  of  an  intermediate  grade  which 
would  provide  the  instructor  of  accounting  with  a  variety  of 
laboratory  material  of  a  practical  and  teachable  character.  It 
should  be  understood  that  the  book  is  essentially  a  compilation 
of  problems  and  exercises  illustrated  by  model  statements  of 
various  types,  rather  than  a  presentation  of  accounting  theory. 
It  is,  therefore,  intended  to  be  used  in  conjunction  with  a  text 
on  accounting  theory  or  to  supplement  the  instructor's  own 
lectures  on  the  subject.  The  work  is  adapted  to  second  year 
students  or  to  those  even  further  advanced  in  their  accounting 
course.     It  is  divided  into  two  parts. 

Part  I  consists  of  more  than  forty  model  forms  of  financial 
statements  and  reports  with  comments  and  interpretations. 
These  serve  the  purpose  of  familiarizing  the  student  with  forms 
of  statements  and  reports  adaptable  to  representative  busi- 
nesses and  institutions,  and  at  the  same  time  they  aim  to  present 
within  certain  limits  the  standardized  practice  in  form  and 
arrangement  of  such  statements.  The  pubUshed  balance  sheets 
of  representative  industrial  concerns  of  this  country  and  Great 
Britain  which  are  reproduced  should  broaden  the  horizon  of  the 
student,  add  to  his  knowledge  of  accounts  and  accounting  terms, 
and  serve  to  develop  his  power  to  interpret  statements  from  the 
point  of  view  of  the  business  executive,  banker,  and  investor. 

Part  II  consists  of  some  four  hundred  problems  and  questions 
in  accounting  theory  classified  and  arranged  to  correspond  to 
the  topics  in  accounting  which  would  as  a  general  practice 
receive  consideration  in  the  intermediate  state  of  the  student's 
work.  Much  more  care  and  thought  have  been  given  to  the 
selection  of  these  problems  than  is  apparent  on  the  surface. 
Many  of  them  are  original  problems  developed  from  the  authors' 
experiences  in  accounting  work,  but  the  majority  are  taken  from 
C.  P.  A.  examinations  given  by  different  states  and  from  the 


vi  PREFACE 

examinations  of  the  American  Institute  of  Accountants. 
Only  such  C.  P.  A.  problems  have  been  selected  as  have  real 
merit.  Many  of  the  problems  have  been  revised  for  the  purpose 
of  making  them  teachable  and  clearer  of  interpretation.  The 
purpose  in  the  main  has  been  to  select  problems  which  combine  a 
maximum  of  benefit  with  a  minimum  of  clerical  work. 

While  many  collections  of  problems  have  been  published,  the 
authors  believe  that  this  is  the  first  time  that  any  serious  thought 
has  been  given  to  the  pedagogy  of  such  laboratory  material. 
Not  only  have  the  problems  been  carefully  classified  and  graded, 
but  a  feature  of  the  work  which  should  be  much  appreciated  by 
all  instructors  is  the  notes  and  comments  which  accompany 
most  of  the  problems.  These  comments  call  attention  to  the 
major  points  of  the  problem,  state  the  nature  and  the  purpose 
of  the  problem,  the  principles  involved  in  its  solution,  reading 
references  where  necessary,  and  helpful  hints  and  suggestions  to 
assist  the  student  in  arriving  at  an  intelligent  and  finished  solu- 
tion of  the  problem.  Throughout  Part  II  cross  references  are 
made  to  the  model  forms  in  Part  I,  which  combined  with  the 
proper  guidance  by  the  instructor,  should  develop  and  maintain 
a  high  standard  of  accounting  technique. 

A  serious  effort  has  been  made  to  have  both  student  and  in- 
structor realize  that  the  solution  of  a  problem  is  of  consequence 
not  merely  for  its  own  sake,  but  of  far  greater  importance  for 
the  training  thus  provided  in  making  a  practical  application  of 
the  principles  involved  in  the  problem.  The  solution  thus  be- 
comes nothing  more  than  a  concise,  well-planned,  and  readable 
presentation  of  a  certain  phase  of  accounting  theory.  The 
student  should  thus  acquire  much  more  than  a  mere  "knack"  or 
skill  in  solving  problems.  Every  problem  should  be  looked  upon 
as  an  actual  "case"  given  to  him  for  his  careful  consideration 
and  opinion,  with  the  result  of  his  thought  and  study  presented 
in  proper  technical  form,  and  reflecting  in  as  high  degree  possible 
his  mature  and  expert  judgment. 

It  is  believed  that  the  instructor  will  find  it  impossible  to 
make  use  of  all  the  problems  under  each  topic  in  a  one  year 
course.  Accordingly,  the  assignments  from  year  to  year  may  be 
varied  to  a  considerable  degree,  thereby  overcoming  the  dangers 
that  result  from  assigning  identical  problems  to  successive  classes. 


PREFACE  vii 

The  carefully  compiled  bibliography  at  the  close  of  each 
section  of  the  book  should  prove  of  great  help  to  the  student 
who  wishes  to  make  an  extended  study  of  a  particular  topic. 

The  Authors 
Boston,  Mass. 
July  1,  1922 


V4   P 
^5  1 

CONTENTS 

PART  I 

ILLUSTRATIVE    FORMS    OF    FINANCIAL    STATEMENTS    AND 

REPORTS 

PAGE 

Preface    v 

Introduction: 

Form  and  arrangement  of  financial  statements;  Importance 
of  technique;  Grouping  of  items;  Punctuation;  Inden- 
tations; Capitalization;  Abbreviations;  Divisions  of  finan- 
cial statements;  Form  of  balance  sheet 3-5 

Illustrative  Statements  for  Sole  Proprietorship: 

Model  Exercise  I,  Trial  Balance,  with  comments 6-7 

Form  I. — Balance  Sheet,  Report  Form,  with  comments  .    .    .        8-10 
Form  II. — Profit   and   Loss   Statement,    Report   Form,   wjth 

comments      11-14 

Form  III. — Closing  Entries,  with  comments 15-17 

Illustrative  Statements  for  Partnership: 

Model  Exercise  II,  Trial  Balance,  with  comments 18-19 

Form  IV. — Adjusting  Journal  Entries,  with  comments    .    .    .  20-21 

Form  V. — Working  Sheet,  with  comments      22-24 

Form  VI. — Balance  Sheet,  Report  Form,  with  comments    .    .  25-26 
Form  VII. — Profit  and   Loss  Statement,  Report   Form,  with 

comments 27-28 

Form  VIII. — Closing  Journal  Entries,  with  comments     ...  29 

Illustrative  Statements  for  Corporation: 

Form  IX. — Balance  Sheet,  Account  Form,  with  comments  30-32 

Form  X. — Profit  and  Loss  Statement,  with  comments     .    .    .  33-34 

Form  XI. — Closing  Journal  Entries 35-36 

Illustrative  Statements  for  Manufacturing  Corporation: 

Model  Exercise  III,  Trial  Balance,  with  comments 37-38 

Form  XII. — Balance  Sheet,  Account  Form 39 

Form  XIII. — Profit  and  Loss  Statement,  Report  Form,  with 

comments      40 

Form  XIV. — Statement  of  Cost  of  Goods  Manufactured,  with 

comments      41 

Form  XV. — Closing  Journal  Entries 42-43 

ix 


X  CONTENTS 

PAGE 

Illustrative  Statements. — Supporting  Schedules  for  Finan- 
cial Statements: 
Form  XVI. — Analysis  of  Cost  of  Goods  Manufactured,  with 

comments      44-45 

Form  XVII. — Analysis  of  Cost  of  Goods  Sold,  with  comments     46 
Form  XVIII. — Analysis  of  Operating  Expenses,   with  com- 
ments          47-48 

Form  XIX. — Analysis  of  Surplus,  with  Comments 49 

Form  XX. — Comparative    Analysis  of    Operating  Expenses, 

withcomments 50-51 

Illustrative  Statements. — Special  Forms  of  Financial 
Statements: 

Form  XXI. — Condensed  Balance  Sheet — American  Interna- 
tional Company 52 

Form  XXII. — Condensed  Income  Account — American  Inter- 
national Company 53 

Form  XXIII. — Comparative  Balance  Sheet — The  Boston  Dry 

Goods  Company 54-55 

Form  XXIV. — Comparative  Income  Statement — The  Boston 

Dry  Goods  Company      56-57 

Form  XXV. — Consolidated  Balance    Sheet — American    Hide 

and  Leather  Company  and  Subsidiary  Companies    .    .    .     58-59 

Form  XXVI. — Double   Account   Form   of    Balance    Sheet — 

Royal  Manufacturing  Company 60-61 

Form  XXVII.— English    Form    of    Balance    Sheet— Walker 

and  Homfrays,  Limited 62-63 

Form  XXVIII. — American    Bankers    Association    Form    for 

Credit  Purposes — Firm  or  Individual 64-65 

Form  XXIX. — American  Bankers  Association  Form  for  Credit 

Purposes — Corporation 66-67 

Form  XXX. — Statement  of  Cash  Receipts  and  Disburse- 
ments— Arlington  Research  Club 68 

Form  XXXI. — Form  of  Balance  Sheet  Recommended  by  the 

Federal  Reserve  Board  for  Credit  Purposes 70-71 

Form  XXXII. — Form  of  Profit  and  Loss  Statement  Recom- 
mended by  the  Federal  Reserve  Board 72 

Form  XXXIII. — Certificate    of    Condition    Required    to    be 

Filed  by  Massachusetts  Corporations 73-75 

Illustrative  Statements. — Published  Balance  Sheets  of 

Represent.ative  Business  Concerns: 

Form  XXXIV. — Balance  Sheet,  Profit  and  Loss  Statement, 
and  Surplus  Account — American  Writing  Paper  Com- 
pany       76-77 

Form  XXXV.— Balance  Sheet— Willys-Overland  Company    .     78-79 

Form  XXXVI. — Consolidated  Balance  Sheet  and  Profit  and 
Loss  Statement — Westinghouse  Electric  and  Manufac- 
turing Company 80-81 


CONTENTS  xi 

PAGE 

Form  XXXVII. — Balance  Sheet  and  Profit  and  Loss  State- 
ment— United  States  Steel  Corporation 82-89 

Form  XXXVIII. — Income    Account    and    Balance    Sheet — 

American  Locomotive  Company 90-92 

Form  XXXIX. — Balance  Sheet  and  Income  Account — Atchi- 
son, Topeka,  and  Santa  Fe  Railway  Company 93-95 

Form  XL. — Consolidated  Balance  Sheet  and  Income  Ac- 
count— Northern  States  Power  Company 96-98 

Form  XLI. — Balance  Sheet  and  Statement  of  Income  and 

Expenses — ^University  of  Chicago 99-104 

Form  XLII. — Comparative  Profit  and  Loss  Statement,  Bal- 
ance Sheet,  and  Comparative  Department  Operating 
Statement— Boston  City  Club 105-108 

Form  XLIII. — Balance  Sheet  and    Statement  of    Income — 

The  Mutual  Insurance  Company 109-110 

Form  XLIV. — Balance  Sheet — National  Bank Ill 

Form  XLV. — Balance  Sheet — A  Massachusetts  Trust  Com- 
pany      112-113 

Form  XLVI. — Statement    of     Condition — A     Massachusetts 

Savings  Bank 114 

Form  XLVII. — Balance  Sheet — Needham  Cooperative  Bank.    115 

Illustrative  Statements. — Auditor's  Report: 

Form  XLVIII. — Audit  Report  covering  audit  of  a  small  re- 
tail business,  comment's  on  the  balance  sheet,  comments 
on  the  operating  statement,  estimated  cash  requirements; 
Exhibit  A — Balance  Sheet;  Exhibit  B — Profit  and  Loss 
Statement;  Exhibit  C — Estimated  Cash  and  Credit  Re- 
quirements        116-121 

Uniform  Accounting  Systems  for  Trade  Associations  .    .    .    122-123 

PART  II 

CLASSIFIED    PROBLEMS   AND    EXERCISES   IN    THEORY   AND 

PRACTICE 

Section  I. — Construction  of  Financial  Statements: 

Group  A. — Single  Proprietorship  Statements,  Problems  1  to  4.  127-135 
Group  B. — Partnership  Statements,  Problems  5  to  9  .  .  .  .  136-148 
Group  C. — Corporation  Statements,  Problems  10  to  16  .  .  .  149-159 
Group  D. — Manufacturing  Statements,  Problems  17  to  25.  .  160-175 
Group  E. — Financial  Statements  Prepared  from  Single  Entry 

Records,  Problems  26  to  34 176-185 

Group  F.— Special  Types  of  Statements,  Problems  35  to  44  .    186-201 
Group  G. — Analysis  and  Interpretation  of  Financial  State- 
ments, Problems  45  to  62 202-228 

Group  H. — Financial  Statements. — Theory  Questions,  Ques- 
tions T-1  to  T-35 229-237 

Bibliography. — Financial  Statements 238-239 


Xii  CONTENTS 

PAGE 

Section  II. — Corporation  Accounts: 

Group  A. — Opening  Books  of  New  Corporation,  Problems  63 

to  76 241-249 

Group  B. — Changing  a  Partnership  to  a  Corporation,  Prob- 
lems 77  to  83 250-258 

Group  C. — Corporate  Bond  Issues,  Problems  84  to  87     ...   259-260 
Group  D. — General    Problems    Involving    Corporation    Ac- 
counts, Problems  88  to  101 261-274 

Group  E. — Corporations. — Theory  Questions,  Questions  T-36 

to  T-72  275-286 

Group  F. — Liquidation  of  Corporations,  Problems  102  to  103.  287-289 
Group  G. — Amalgamations  and  Mergers,  Problems  104  to  107.  290-295 
Group  H. — Holding    Companies    and    Consolidated    Balance 

Sheets,  Problems  108  to  114 296-309 

Group    I. — Holding  Companies  and  Consolidations. — Theory 

Questions.  Questions  T-73  to  T-86 310-313 

Group  J.— Bonds  and  Sinking  Funds,  Problems  115  to  123    .   314-318 
Group  K. — Bonds  and  Bond  Sinking  Funds. — Theory  Ques- 
tions, Questions  T-87  to  T-98 319-321 

Bibliography 322-323 

Section  III. — Depreciation,  Reserves,  and  Surplus: 

Group  A. — Depreciation  and  Reserves,  Problems  124  to  134.  325-332 
Group  B. — Depreciation   and   Reserves, — Theory  .Questions, 

Questions  T-99  to  T-113 333-337 

Group  C— Adjustments  and  Analysis  of  Surplus,  Problems 

135  to  140 338-344 

Group  D. — Surplus  and  Reserves. — Theory  Questions,  Ques- 
tions T-114  to  T-125 345-348 

Bibliography 349 

Section  IV. — Partnership  Problems: 

Group  A. — Admission  of  Partner,  Problems  141  to  151    .    .    .  351-357 
Group  B. — Dissolution  of  a  Partnership,  Problems  152  to  155.  358-360 
Group  C. — Partnership   Liquidation   by   Installments,   Prob- 
lems 156  to  162 361-366 

Group  D. — Miscellaneous    Partnership    Problems,    Problems 

163  to  169 367-371 

Group  E. — Partnerships. — Theory  Questions,  Questions  T-126 

to  T- 135 372-374 

Bihliogruphy 375 

Section    V. — CoxsicNiMENTs,     Branch    Houses,    and    Selling 

Agexcies: 

(iron])  A. — Consignments  and  Joint  Ventures,  Problems  170 

to  179 377-384 

Croup  B. — Consignments  and  Joint  Ventures. — Theory  Ques- 
tions, Questions  T-136  to  T-140 385-386 


CONTENTS  .xiii 


PAGB 


Group  C. — Brunch   Houses   and   Selling   Agencies,    Problems 

180  to  189 387-396 

Group  D. — Branch    Houses. — Theory    Questions,    Questions 

T-141  to  T-145 397-398 

Bibliography 399 

Section    VI. — Miscellaneous    Problems    and    Theory    Ques- 
tions: 
( J  roup  A. — Fire  Loss  and  Insurance  Adjustments,  Problems 

190  to  199 401-408 

Group  B. — Suspense  Items  and  Adjustments,  Problems  200 

to  204 409-412 

Group  C. — Miscellaneous  Thcorj-  Questions,  Questions  T-146 

to  T-165 413^18 

Bibliography 419 

Index 421 


INTRODUCTION 


FORM   AND   ARRANGEMENT   OF 
FINANCIAL   STATEMENTS 

Importance  of  Technique. — Financial  statements  are  the  most 
formal  documents  in  accounting,  and  should,  therefore,  be  pre- 
pared with  the  greatest  degree  of  accuracy  and  understanding. 
They  may  be  said  to  bear  the  same  relation  to  other  phases  of 
accounting  as  an  engraved  invitation  does  to  ordinary  social 
correspondence. 

The  entire  accounting  system  should  be  arranged  with  a  view 
to  gathering  all  the  information  that  may  be  required  in  the 
preparation  of  the  financial  statements.  All  other  processes  in 
accounting  are  merely  the  means  to  an  end.  The  end  to  be 
sought  is  the  presentation  through  readable  and  comprehensive 
reports  or  statements  of  the  results  of  business  operations  and  a 
clear  and  accurate  statement  of  financial  condition.  Poor  ar- 
rangement and  carelessness  in  the  preparation  of  financial  state- 
ments usually  give  the  impression  that  the  books  of  account 
have  likewise  been  kept  in  a  careless  and  unmethodical  manner. 

One  extreme  in  regard  to  form  and  arrangement,  as  applied  to 
financial  statements,  is  to  throw  together  a  mass  of  figures  and 
facts  in  a  careless  fashion  without  regard  to  logical  arrangement. 
Such  figures  are  accordingly  more  or  less  unintelligible,  and  give 
no  definite  information  as  to  details.  The  other  extreme  is  to 
prepare  the  statements  in  such  a  technical  manner  that  none 
except  those  skilled  in  accounts  can  read  them  intelligently. 

As  a  happy  medium  the  facts  should  be  presented  in  a  formal 
and  logical  order,  but  with  all  items  well  defined  and  completely 
stated,  and  with  the  facts  presented  in  proper  sequence.  The 
terms  should  be  explicit  and  the  figures  accurate.  While  con- 
taining no  unnecessary  words,  they  should  be  so  complete  that 
the  layman  will  not  be  left  in  doubt  as  to  the  meaning  of  the 
various  items.     Such  work  is  distinctly  constructive  in  its  nature 

3 


4  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

and  requires  imagination,  an  analytical  turn  of  mind,  and  the 
ability  to  think  clearly  and  to  see  things  from  the  other  person's 
point  of  view.  Good  technique  requires  attention  to  punctua- 
tion, indentations,  capitalization,  and  abbreviations. 

Grouping  of  Items. — All  items  of  like  nature  should  be  grouped 
under  appropriate  headings  so  that  proper  comparison  and  analy- 
sis of  the  financial  facts  presented  may  be  made.  All  items  and 
totals  should  be  properly  defined. 

Punctuation. — ^Little  punctuation  is  necessary  in  financial  state- 
ments because  of  the  grouping  and  indentations.  The  principal 
marks  used  are  the  comma,  dash,  semi-colon,  and  parentheses. 
The  comma  is  used  in  the  customary  way  for  the  punctuation 
of  dates,  explanatory  clauses,  etc. 

It  is  recommended  that  the  dash  be  used  after  such  words  as 
"Less"  and  "Deduct"  when  followed  by  other  words  on  the 
same  hne. 

The  colon  is  used  after  all  group  headings,  the  items  of  which 
appear  in  tabulated  form  under  such  headings. 

The  parentheses  are  used  to  inclose  all  words  and  phrases  of 
an  explanatory  nature  such  as  "cost,"  "book  value,"  etc.,  used 
after  certain  assets  in  the  Balance  Sheet. 

The  dollar  mark  should  not  be  used  when  figures  appear  in 
ruled  columns  but  should  appear  at  the  head  of  all  unruled 
columns,  and  should  be  repeated  when  the  column  is  broken 
by  a  single  or  double  line.  This  applies  only  to  pen-written 
work  on  ordinary  ruled  sheets,  and  not  to  typewritten  work 
where  the  dollar  mark  appears  in  all  columns. 

Indentations. — The  various  indentations  are  for  the  purpose  of 
indicating  the  connection  between  items  and  groups  of  items,  and 
should  be  given  close  attention  in  order  that  the  statement  may 
be  more  easily  read.  They  should  follow  as  closely  as  possible 
the  ordinary  rules  for  tabulation  of  financial  facts,  the  main 
thing  being  to  make  the  indentations  uniform. 

Capitalization. — Practice  in  the  use  of  capitals  should  be  con- 
sistent. One  method  is  to  capitalize  all  words  in  each  item 
except  the  articles,  prepositions,  and  conjunctions.  Another 
method  is  to  capitalize  only  the  first  word  of  each  item. 

Abbreviations. — There  should  be  no  abbreviations  except  in 
extreme  cases.  Ditto  marks  should  never  appear  in  a  financial 
statement. 


FINANCIAL  STATEMENTS  AND  REPORTS  5 

Divisions  of  the  Financial  Statement. — In  the  field  of  account- 
ing work  covered  in  these  exercises  we  need  recognize  only  the 
following  divisions  of  financial  statements: 

Balance  Sheet  with  supporting  schedules,  known  as  Exhibit  A. 

Profit  and  Loss  Statement  with  supporting  schedules,  known  as 
Exhibit  B. 

Statement  of  Cost  of  Goods  Sold  (for  manufacturers  only), 
known  as  Exhibit  C. 

Sundry  other  statements  are  used  from  time  to  time,  but 
they  are  usually  subsidiary  to  the  above  named  statements. 

Form  of  Balance  Sheet. — The  most  common  forms  of  Balance 
Sheet  are  known  as  the  Report  or  Statement  form,  and  the 
Account  or  Technical  form.  The  former  is  known  as  a  one- 
page  or  "running"  form,  the  assets  appearing  at  the  top,  fol- 
lowed by  the  liabilities  and  capital.  It  should  be  used  only 
when  the  number  of  items  is  small  and  the  entire  statement 
can  be  placed  on  a  single  page  without  crowding. 

The  account  form,  known  as  the  two-page  or  technical  form, 
is  used  when  the  number  of  items  is  large,  the  assets  being  placed 
to  the  left,  and  the  liabilities  and  capital  to  the  right.  All  other 
forms  of  Balance  Sheets  are  variations  of  these  two  forms. 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 
MODEL    EXERCISE   I 


Financial  Statements  for  Sole  Proprietorship 

GEORGE   W.    DUNN 

Trial  Balance— December  31,  1921 

(Adjusted) 

Cash  on  Hand  and  in  Bank                                                                 S     5  630  00 

Accounts  Receivable                                                                                    224  296  00 

Notes  Receivable                                                                                       22  600  00 

Inventory,*  December  31,  1920  (cost)                                                      210  275  00 

Interest  Accrued  on  Notes  Receivable                                                            654  00 

Real  Estate  (book  value)                                                                          76  540  00 

Store  Fixtures  (book  value)                                                                          14  416  00 

Office  Furniture  and  Equipment  (book  value)                                          2  760  00 

Interest  Prepaid  on  Notes  Payable  Discounted                                        1  350  00 

Advertising  Matter  on  Hand                                                                             956  00 

Taxes  Prepaid                                                                                                  890  00 

Insurance  Prepaid                                                                                                 175  00 

Accounts  Payable 

$  84  264  00 

Notes  Payable 

50  000  00 

Mortgage  Payable 

70  000  00 

Interest  Accrued  on  Notes  Payable 

460  00 

Interest  Accrued  on  Mortgage  Payable 

800  00 

George  W.  Dunn,  Capital 

275  000  00 

George  W.  Dunn,  Current                                                                            15  600  00 

Sales 

852  075  00 

Sales  Returns  and  Allowances                                                                     17  273  00 

Purchases                                                                                                        649   120  00 

Purchase  Returns  and  Allowances 

8  670  00 

Freight  and  Hauling  Inward                                                                          4  035  00 

Advertising                                                                                                       21  607  00 

Store  Clerks'  Salaries                                                                                     18  460  00 

Traveling  Salesmen's  Salaries                                                                      18  644  00 

Traveling  Expenses                                                                                         13  720  00 

Store  Supplies  Used                                                                                          1  516  00 

Freight  and  Hauling  Outward                                                                       2  060  00 

Office  Clerks'  Salaries                                                                                      6  488  00 

Office  Expenses                                                                                                  1  780  00 

Maintenance  of  Real  Estate                                                                          4  260  00 

Interest  on  Notes  Receivable 

1  307  00 

Interest  on  Bank  Balances 

79  00 

Discounts  on  Purchases 

4  890  00 

Interest  on  Notes  Payable                                                                              5  745  00 

Interest  on  Mortgage  Payable                                                                      4  200  00 

Discounts  on  Sales                                                                                            2  495  00 

$1  347  545  00     $1   347  545  00 

Inventory,  December  31,  1921  (cost)  $185,820.00 

Required : 

(a)  Profit  and  Loss  Statement 

(b)  Balance  Sheet 

(c)  Closing  Entries. 


FINANCIAL  STATEMENTS  AND  REPORTS  7 

Comments. — Mr.  Dunn  conducts  a  wholesale  jobbing  business.  He 
owns  a  six-story  building,  using  the  basement  and  first  two  floors  for  his 
business  and  renting  the  upper  floors. 

"Maintenance  of  Real  Estate"  includes  taxes,  insurance,  repairs  to 
building,  depreciation,  heat  and  light,  janitor  and  helpers,  etc.,  and  is  to 
be  charged  as  an  operating  expense  in  lieu  of  rent. 

Freight  and  hauling  inward  on  merchandise  purchases  is  considered  a  part 
of  the  cost  of  goods  purchased,  and  the  proper  portion  thereof  is  included 
in  the  cost  of  goods  on  hand,  both  at  the  beginning  and  at  the  end  of  the  year. 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  I. — Balance  Sheet  (Report  Form). 


GEORGE   W.    DUNN 


Exhibit  A 


Balance  Sheet,— December  31,  1921 

Assets 


Current  Assets: 


Cash 

$     5  630  00 

Accounts  Receivable 

224  296  00 

Notes  Receivable 

22  600  00 

Merchandise  on  Hand  (cost) 

185  820  00 

Accrued  Items: 

Interest  on  Notes  Receivable 

654  00 

Fixed  Assets: 

Real  Estate  (book  value) 

$  76  540  00 

Store  Fixtures  (book  value) 

14  416  00 

OflSce    Furniture    and    Equipment    (book 

value) 

2  760  00 

Deferred  Charges  to  Operations: 

Advertising  Matter  on  Hand 
Interest   Prepaid   on    Notes   Payable   Dis- 
counted 
Taxes  Prepaid 
Insurance  Prepaid 
Total  Assets 


Liabilities  and  Capital 


956  00 


1  350  00 
890  00 
175  00 

3  371  00 

$536  087  00 

Current  Liabilities: 
Accounts  Payable 
Notes  Payal)le 
Accrued  Items: 

Interest  on  Notes  Payal:)le       $       460  00 
Interest  on   Mortgage   Pay- 
able 800  00 
Fixed  Liabilities: 

Mortgage  Payable 
Total  Liabilities 
George  W.  Dvmn's  Capital: 
Balance,  December  31,  1920 
Add — Net  Profit  for  the  Year 

(See  Exhibit  B)  $71  163  00 

Less — Drawings  for  the  Year     15  600  00 
Total  Liabilities  and  Capital 


$  84  264  00 
50  000  00 


1  260  00  $135  524  00 


$275  000  00 


70  000  00 
$205  524  00 


55  563  00   330  563  00 
$536  087  00 


FINANCIAL  STATEMENTS  AND  REPORTS  9 

Form  1 — Balance  Sheet. — This  form  illustrates  the  manner  of  setting  up 
the  report  form  of  balance  sheet  for  a  single  proprietorship.  Attention  is 
called  to  the  following  points  in  this  statement: 

Heading. — This  appears  on  three  lines,  the  first  of  which  contains  the 
name  of  the  proprietor,  the  second,  the  words  "Exhibit  A,"  and  the  third, 
the  title  and  date  of  statement.  Each  item  should  be  properly  centered  and 
all  words  underlined.  The  words  "Exhibit  A"  may  appear  at  the  bottom 
of  the  page  if  the  balance  sheet  forms  a  part  of  a  report  which  is  bound  at 
the  top  instead  of  the  left  side.  The  date  should  always  be  as  of  the  close 
of  the  fiscal  period. 

Grouping. — The  two  main  sections  are  headed  "Assets"  and  "Liabilities 
and  Capital"  respectively.  The  subheadings  under  the  "Assets"  section  are 
"Current  Assets,"  "Fixed  Assets,"  and  "Deferred  Charges  to  Operations." 
The  latter  should  always  l)e  shown  as  the  last  subheading  in  the  "Assets"  group. 
In  this  form,  current  assets  appear  first.  Either  current  assets  or  fixed 
assets  may  appear  first,  depending  upon  the  purpose  for  which  the  balance 
sheet  is  to  be  used,  and  the  total  amount  of  the  respective  groups.  The 
current  assets  usually  appear  first  when  the  statement  is  submitted  for 
credit  purposes.  If  the  amount  of  the  fixed  assets  is  very  large  as  compared 
with  current  assets,  then  the  "Fixed  Assets"  group  may  be  shown  first. 

The  "Liabilities  and  Capital"  section  is  subdivided  into  the  following 
groups:  "Current  Liabilities,"  "Fixed  Liabilities,"  and  "Capital."  The 
capital  should  always  appear  as  the  last  group  under  the  "Liabilities" 
section,  while  either  fixed  liabilities  or  current  liabilities  may  appear  first, 
depending  upon  the  manner  in  which  the  assets  are  shown.  If  current 
assets  are  shown  first,  then  current  liabilities  must  be  shown  first,  and  vice 
versa. 

The  words  "book  value"  after  each  of  the  items  under  the  "Fixed  Assets" 
group  indicate  that  whatever  depreciation  has  been  set  aside  has  been 
credited  to  the  asset  account,  and,  therefore,  the  amounts  represent  the  cost 
of  the  assets  less  the  depreciation  and  not  the  original  cost. 

Underlining. — All  main  headings  and  subheadings  are  underlined.  This 
is  done  for  emphasis  and  to  make  the  statement  more  readable,  especially 
when  pen-written.  In  typewritten  statements  capitalization  of  items  may 
serve  the  same  purpose  as  underlining.  Each  item  that  touches  the  left- 
hand  margin  should  be  underlined,  the  "Total  Assets"  and  "Total  Lia- 
bilities and  Capital"  being  underlined  with  a  double  line  to  correspond  with 
the  double  ruling  under  the  total  figures. 

Punctuation. — Commas  are  used  to  punctuate  the  date  in  the  heading 
and  the  capital  section.  The  period  is  not  necessary  in  the  heading,  but 
may  be  used  if  desired. 

The  colon  is  used  after  each  of  the  subheadings  and  the  term  "Accrued 
Items"  under  the  current  assets  and  current  liabilities. 

The  dash  is  used  to  separate  the  title  of  the  statement  and  the  date,  and 
after  the  words  "Add"  and  "Less"  in  the  capital  section. 

Parentheses  are  used  for  such  explanatory  words  as  "cost,"  "book  value," 
and  "See  Exhibit  B,"  the  latter  referring  to  the  profit  and  loss  statement. 

The  dollar  sign  appears  at  the  top  of  each  column  in  typewritten  work, 


10  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

and  is  repeated  when  the  column  is  broken  by  ruling.     When  ruled  columns 
are  used,  the  dollar  signs  are  omitted,  especially  for  pen  work. 

Indentations. — There  are  but  two  indentations — one  for  the  main  items 
under  the  subheads,  and  another  for  the  items  of  similar  character  under 
subheads  such  as  "Accrued  Items"  under  "Current  Assets"  and  "Accrued 
Items"  under  "Current  Liabilities."  Care  should  be  taken  to  keep  in- 
dentations uniform. 


FINANCIAL  STATEMENTS  AND  REPORTS  H 

Form  II. — Profit  and  Loss  Statement  (Report  Form). 
GEORGE  W.  DUNN 
Exhibit  B 
Profit  and  Loss  Statement  for  Year  Ending  December  31,  1921 

Gross  Sales  $852  075  00 

Less — Returns  and  Allowances  17  273  00 

Net  Sales  $834  802  00 

Deduct — Cost  of  Goods  Sold: 


Inventory,  December  31,  1920  $210  275  GO 

Gross  Purchases  $649  120  00 

Less — Returns  and 

Allowances  8  670  00 

Net  Purchases 
Freight  and  Hauling  Inward 
Total  Cost  of  Goods 

Less — Inventory,  December  31,  1921 

Gross  Profit  on  Sales 

Deduct — Operating  Expenses: 
Store  Clerks'  Salaries 
Advertising 

Traveling  Salesmen's  Salaries 
Traveling  Expenses 
Office  Clerks'  Salaries 
Maintenance  of  Real  Estate 
Freight  and  Hauling  Outward 
Office  Expenses 
Store  Supplies  Used 
Net  Trading  Profit  $77  327  00 

Add — Other  Income: 
Discount  on  Purchases 
Interest  on  Notes  Receivable 
Interest  on  Bank  Balances 
Total  Income 

Deduct — Other  Expenses: 
Interest  on  Notes  Payable 
Interest  on  Mortgage  Payable 
Discounts  on  Sales 
Net  Profit  for  the  Year  (See  Exhibit  A) 


640  450  00 

4  035  00 

$854  760  00 

185  820  00 

668  940  00 

$165  862  00 

$18  460  00 

21  607  00 

18  644  00 

13  720  00 

6  488  00 

4  260  00 

2  060  00 

1  780  00 

1  516  00 

88  535  00 

$4  890  00 

1  307  00 

79  00 

6  276  00 

$5  745  00 
4  200  00 
2  495  00 

$83  603  00 
12  440  00 

$71  163  00 

12  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  II — Profit  and  Loss  Statement. — This  form  illustrates  a  form  of 
profit  and  loss  statement  in  common  use  for  a  trading  business — in  this 
instance,  for  a  single  proprietorship.  Attention  is  directed  to  the  following 
details  concerning  this  form  of  statement: 

Heading. — The  heading  appears  in  three  lines,  as  in  the  balance  sheet. 
The  profit  and  loss  statement  is  usually  designated  as  "Exhibit  B."  The 
name  of  the  firm  appears  on  the  first  line,  "Exhibit  B"  appears  on  the  second 
line,  and  the  third  line  is  used  for  the  title  and  designation  of  period  covered 
by  the  statement.  The  latter  should  show  not  merely  the  date  of  the  state- 
ment, but  should  state  specifically  the  entire  period  covered. 

Grouping. — This  statement  is  divided  into  four  main  sections:  (1)  the 
Sales  and  Cost  of  Sales  section,  known  as  the  Trading  section;  (2)  the 
Operating  Expense  section;  (3)  the  Other  Income  section;  (4)  Other  Ex- 
penses section.  They  should  appear  in  the  order  shown  in  Form  II,  unless 
the  statement  shows  a  loss  from  operations  instead  of  net  income  from 
operations,  in  which  case  the  "Other  Expense"  group  should  be  added  to  Loss 
from  Operations,  giving  a  total  loss.  From  this  should  be  deducted  Other 
Income,  giving  the  net  profit  or  net  loss  for  the  period.  The  Trading 
section  should  include  all  items  that  have  to  do  directly  with  the  cost  and 
sales  of  merchandise.  Freight  In  is  usually  added  to  cost  of  goods.  If, 
however,  no  portion  of  freight  is  included  in  the  cost  of  goods  on  hand  at  the 
beginning  and  at  the  end  of  the  year,  this  item  should  be  shown  as  operating 
expense  (See  Form  VII).  Trading  details  such  as  returns,  allowances,  etc., 
should  be  shown  when  available.  Freight  Out  is  usually  shown  as  a  selling 
expense,  but  may  be  deducted  from  sales  if  it  is  the  custom  to  prepay  all 
transportation  charges  and  fix  a  uniform  selling  price  which  includes  cost 
of  delivery  to  all  points.  This  is  the  exception  rather  than  the  rule,  because 
of  the  wide  variation  in  freight  charges  to  various  delivery  points.  Sales 
and  purchase  discounts  are  sometimes  shown  as  deductions  from  sales  and 
purchases  respectively,  but  are  here  shown  as  Other  Expenses  and  Other 
Income.  Trade  discounts  which  are  not  conditional  upon  payment  of 
accounts  within  a  specified  time  but  depend  upon  quantity  purchases  or 
sales,  etc.,  should  be  shown  as  deductions  in  the  Trading  section.  Cash 
discounts,  on  the  other  hand,  should  be  handled  in  the  same  manner  as 
interest  collected  or  paid,  upon  the  theory  that  they  are  a  charge  or  income 
of  the  period  when  the  accounts  are  paid,  and  are  not  of  the  period  when 
the  sale  or  purchase  took  place. 

Underlining. — Attention  is  called  to  the  fact  that  all  items  that  touch 
the  left-hand  margin  are  underlined.  The  subheadings.  Cost  of  Goods 
Sold,  Operating  Expenses,  Other  Income,  and  Other  Expenses,  are  also 
underlined.  The  words  "Deduct"  and  "Add,"  preceding  these  group 
headings,  are  never  underlined.  In  some  instances,  these  words  are  omitted 
entirely.  The  purpose  of  the  underline  is  to  make  the  important  items 
stand  out,  thus  enabling  the  reader  to  find  them  more  readily. 

Punctuation. — The  rules  regarding  punctuation  are  similar  to  those  sug- 
gested for  the  Balance  Sheet,  the  colon  being  used  after  each  group  heading 
and  the  dash  after  the  words  Less,  Add,  and  Deduct. 


FINANCIAL  STATEMENTS  AND  REPORTS  13 

Indentations. — Two  main  indentations  are  made  following  the  ordinary 
rules  for  tabulation.  It  is  important  that  the  left-hand  margin  be  kept 
straight,  and  that  the  indentations  be  uniform  and  not  too  wide. 

Variation  in  Form  of  Cost  of  Goods  Sold  Section. — Instead  of  starting  with 
the  inventory  at  the  beginning  of  the  period  and  then  adding  the  net  pur- 
chases and  freight  to  find  the  total  cost  of  all  goods,  and  then  deducting 
inventory  at  the  end  of  period  to  find  cost  of  goods  sold,  the  net  purchases 
are  added  to  the  freight  to  find  total  cost  of  purchases  for  period.  To  this 
figure  will  be  added  the  decrease  in  inventory  at  the  close  of  the  period  as 
compared  with  that  on  hand  in  the  beginning.  Under  this  plan  decrease 
in  inventory  is  added,  while  increase  in  inventory  is  deducted,  the  result  in 
either  case  being  cost  of  goods  sold.  Under  this  plan  the  items  in  Form  II 
would  appear  as  follows: 

Deduct — Cost  of  Goods  Sold : 

Gross  Purchases  $649  120  00 

Less — Returns  and  Allowances  8  670  00 

Net  Purchases  $640  450  00 

Add — Freight  and  Hauling  Inward  4  035  00 

Total  Cost  of  Purchases  for  Year  $644  485  00 

Add — Decrease  in  Inventory: 

Inventory,  December  31, 

1920  $210  275  00 
Inventory,  December  31, 

1921  185  820  00         24  455  00 

Cost  of  Goods  Sold  $668  940  00 

Classification  of  Expenses. — In  this  particular  statement  no  attempt  is 
made  to  classify  operating  expenses,  except  that  the  larger  items  are  shown 
first.  The  same  order  has  been  followed  in  grouping  the  other  income  and 
expense  items.  There  are  three  common  methods  of  setting  up  the  operating 
expenses: 

(1)  They  may  be  shown  in  detail  with  larger  items  first,  as  shown  in  Form 
II. 

(2)  They  may  be  shown  in  detail  by  grouping  under  subheads  of  Selling, 
etc.  When  this  form  is  used,  the  details  are  shown  short,  with  group  totals 
in  inside  column. 

(3)  They  may  be  departmentized,  and  only  totals  for  each  shown  in 
profit  and  loss  statements,  the  details  being  shown  in  supporting  schedules 
When  the  last  method  is  used  the  items  would  appear  as  follows: 

Deduct — Operating  Expenses: 

Selling  Expenses  (See  Schedule  2)  $76  007 

General  Administration  (See  Schedule  3)  12  528 

$88  535 

Operating  Expenses  include  all  those  ordinary  expense  items  necessary 
for  the  operation  of  the  business  and  those  common  to  all  other  concerns  in 
the  same  line  of  business.     Such  expense,  deducted  from  gross  profit,  shows 


14  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

profit  from  the  regular  operations  of  the  business  before  allowing  for  the 
cost  of  obtaining  capital  with  which  to  operate  the  business  or  any  unusual 
charges  beyond  the  control  of  the  management.  Such  items  appear  under 
the  Other  Expenses  group  and  in  this  statement  are  represented  by  interest 
on  notes  and  mortgages  and  discount  on  sales,  all  of  which  are  financial 
items.  Loss  on  bad  debts  is  usually  shown  under  this  group  as  well  as  dona- 
tions and  other  unusual  expenses. 

Other  Income  items  represent  those  sources  of  income  other  than  from 
the  regular  trading  operations  of  the  business.  They  include  income  de- 
rived from  financial  operations  such  as  interest  and  discount  received  and 
any  other  income  aside  from  the  ordinary  trading  income  accounts.  In  this 
statement  they  include  interest  collected  on  notes  and  bank  balances  and 
discounts  on  purchases. 


FINANCIAL  STATEMENTS  AND  REPORTS  15 

Form  III. — Closing  Entries. 

GEORGE   W.    DUNN 

Closing  Entries — December  31,  1921 

Sales  $17  273  00 

To  Sales  Returns  and  Allowances  $17  273  00 

To  close  the  sales  returns  and  allowances  for  the  year  into 
the  Sales  account. 

—31— 
Purchase  Returns  and  Allowances  8  670  00 

To  Purchases  8  670  00 

To  close  the  purchase  returns  and  allowances  for  the  year 
into  the  Purchases  account. 

—31— 

Purchases  4  035  00 

To  Freight  and  Hauling  Inward  4  036  00 

To  close  the  cost  of  freight  and  hauling  inward  on  Mer- 
chandise purchases  for  the  year  into  the  Purchases  account. 

—31— 
Purchases  210  275  00 

To  Inventory  210  275  00 

To  close  cost  of  goods  on  hand  12/31/20  into  the  Purchases 
account. 

—31— 
Inventory  185  820  00 

To  Purchases  185  820  00 

To  bring  onto  the  books  through  the  Purchases  account  the 
cost  of  goods  on  hand  12/31/21. 

—31— 
Sales 

To  Purchases 

To  close  the  cost  of  goods  ( 
Sales  account : 

Inventory  12/31/20 

Gross  Purchases 

Less — Returns 

Freight  and  Hauling  Inward 

Total 

Less— Inventory  12/31/21 

Coet  of  Sales,  as  above 


Sales 

To  Profit  and  Loss 

To  close  the  gross  profit  on  sales  for  the  year  into  Profit 
and  Loss  account. 

Gross  Sales  $852  075  00 

Less — Returns  and  allowances  17  273  00 

Net  Sales  $834  802  00 

Less— Cost  of  goods  sold  668  940  00 

$165  862  00 


i  during  the 

year  into  the 

668  940  00 

668  940  00 

$649  120  00 
8  670  00 

$210  275  00 

640  450  00 

4  035  00 

$854  760  00 

185  820  00 
$668  940  00 

0 

—31— 

165 

862 

00 

165  862  00 

16  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Closing  Entries — December  31, 1921  (Concluded) 

Discounts  on  Purchases  $4  890  00 

Interest  on  Notes  Receivable  1  307  00 

Interest  on  Bank  Balances  79  00 

To  Profit  and  Loss  $6  276  00 

To  close  the  accounts  representing  miscellaneoua  income  for 
the  year  into  Profit  and  Loss  account. 

—31— 

Profit  and  Loss  88  535  00 

To  Store  Clerks'  Salaries  18  460  00 

Advertising  21  607  00 

Traveling  Salesmen's  Salaries  18  644  00 

Traveling  Expenses  13  720  00 

Office  Clerks'  Salaries  6  488  00 

Maintenance  of  Real  Estate  4  260  00 

Freight  and  Hauling  Outward  2  060  00 

Office  Expenses  1  780  00 

Store  Supplies  Used  1  616  00 

To  close  the  accounts  representing  the  operating  expenses 
for  the  year  into  Profit  and  Loss  account. 

—31— 
Profit  and  Loss  12  440  00 

To  Interest  on  Notes  Payable  5  745  00 

Interest  on  Mortgage  Payable  4  200  00 

Discount  on  Sales  2  496  00 

To  close  the  accounts  representing  miscellaneous  expenses 
for  the  year  into  Profit  and  Loss  account. 

—31— 
Profit  and  Loss  71  163  00 

To  George  W.  Dunn,  Current  71  163  00 

To  transfer  the  net  profit  for  the  year  to  George  W,  Dunn's 
Current  account. 

—31— 
George  W.  Dunn,  Current  55  563  00 

George  W.  Dunn,  Capital  55  563  00 

To  transfer  to  George  W.  Dunn's  Capital  account  the 
credit  balance  of  his  Current  account,  being  the  net  addition 
for  the  year  to  his  capital  investment. 


FINANCIAL  STATEMENTS  AND  REPORTS  17 

Form  III — Closing  Entries. — This  illustrates  the  method  of  closing  the 
nominal  accounts  in  the  ledger  at  the  close  of  the  fiscal  period.  The  trading 
items  are  closed  through  Purchases  account.  An  alternate  method  would 
be  to  close  these  items  through  a  Trading  account.  The  items  for  the 
closing  entries  are  taken  directly  from  the  Profit  and  Loss  Statement 
(Form  II). 

As  a  general  rule  the  entries  should  be  made  in  the  order  in  which  they 
appear  on  the  statement.  There  are  a  number  of  variations  in  the  method 
of  closing  the  ledger,  but  the  method  used  in  Form  III  has  the  advantage 
of  being  logical,  complete,  and  easily  understood. 


18 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 

MODEL  EXERCISE  II 

Financial  Statements  For  A  Partnership 

HALL   AND   MARVIN 

Trial  Balance— June  30,  1922 


Land  (cost) 

Building  (cost) 

Furniture  and  Fixtures  (cost) 

Cash 

Accounts  Receivable 

Notes  Receivable 

Inventory,  December  31,  1921  (cost) 

Mortgage  Payable 

Accounts  Payable 

Notes  Payable 

C.  R.  Marvin,  Salary  Account 

Reserve  for  Depreciation  of  Building 

Reserve  for  Depreciation  of  Furniture  and  Fixtures 

Reserve  for  Loss  on  Bad  Accounts  and  Notes  Receivable 

H.  B.  Hall,  Capital 

H.  B.  Hall,  Drawings 

C.  R.  Marvin,  Capital 

C.  R.  Marvin,  Drawings 

Sales 

Purchases 

Freight,  Express,  and  Cartage  Inward 

Traveling  Expenses 

Salaries  and  Wages 

Delivery  Expenses 

Office  Expenses 

Insurance 

Interest  on  Notes  Receivable 

Interest  on  Notes  Payable 

Interest  on  Mortgage  Payable 

Cash  Discount  on  Purchases 

Cash  Discounts  on  Sales  ' 


Cost  of  merchandise  on  hand  June  30,  1922,  $25,710.40. 

Required : 

(a)  Adjusting  journal  entries  in  complete  form 

(b)  Working  sheet; 

(c)  Profit  and  loss  statement 

(d)  Balance  sheet 

(e)  Closing  entries. 

Comments. — The  firm  of  Hall  and  Marvin  conducts  a  wholesale  and 
retail  hardware  business,  owning  its  own  real  estate. 

By  the  terms  of  the  partnership  agreement,  profits  and  losses  are  shared 
two-thirds  to  Mr.  Hall  and  one-third  to  Mr.  Marvin.     Mr.  Marvin,  who  acts 


$55  000  00 

37  500  00 

5  820  00 

7  682  53 

23  731  40 

730  00 

24  260  75 

$35  000  00 

9  840  62 

6  000  00 

250  00 

7  600  00 

1  750  00 

169  80 

60  OCO  00 

1  869  00 

30  000  00 

4  705  00 

82  687  19 

63  321  60 

1  924  34 

2  107  40 

9  369  72 

1  290  81 

1  587  10 

435  00 

136  24 

238  90 

875  00 

486  72 

372  02 

$232  820  57 

$232  820  57 

FINANCIAL  STATEMENTS  AND  REPORTS  19 

as  general  manager,  is  allowed  a  salary  of  $250.00  a  month,  which  is 
considered  as  an  expense  of  operating  the  business;  profits  not  withdrawn 
by  the  partners  are  not  considered  a  part  of  their  capital  investments, 
but  are  credited  to  the  partners'  Drawing  accounts,  and  may  be  withdrawn 
by  the  partners  at  their  convenience.  On  December  31,  1921,  Mr.  Hall's 
Drawing  account  contained  a  credit  balance  of  $3,629.40.  Mr.  Marvin's 
Drawing  account  had  no  balance. 

Freight,  express,  and  cartage  inward  on  merchandise  purchases  is  not  con- 
sidered a  part  of  the  cost  of  goods  purchased.  The  stock  is  very  varied, 
and  to  distribute  properly  the  cost  of  freight  and  carting  among  the  numer- 
ous commodities  would  be  difficult  and  unsatisfactory. 

During  the  six  months  ending  June  30,  1922,  the  Sales  account  has  been 
credited  for  $86,108.89  representing  gross  sales,  and  debited  for  $3,421.70 
representing  sales  returns  and  allowance.  The  Purchases  account  has  been 
debited  for  $57,529.46,  gross  purchases,  and  credited  for  $4,207.86,  purchase 
returns  and  allowances. 

In  order  that  the  results  of  the  period  may  be  correctly  shown,  the  follow- 
ing items  require  adjustment: 

Unexpired  insurance  as  of  June  30  $260  00 

Taxes  accrued  to  June  30  102  50 

Interest  accrued  on  interest  bearing  notes  receivable  to  June  30  24  60 

Interest  accrued  on  interest  bearing  notes  payable  to  June  30  75  00 

There  are  office  supplies  on  hand  which  cost  150  89 

Depreciation  on  the  building  is  figured  at  the  rate  of  2%  per  annum; 

on  the  furniture  and  fixtures  at  10%  per  annum. 
It  is  desired  to  set  aside  out  of  the  profits  for  the  period  a  further 
reserve  for  loss  on  bad  accounts  and  notes  receivable  amount- 
ing to  3^2%  of  the  net  sales. 


20 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  IV. — Adjusting  Journal  Entries. 
HALL   AND    MARVIN 

Adjusting  Entries,  June  30,  1922 


Unexpired  Insurance 
Insurance 

To  bring  onto  the  books  as  an  asset  the 
unexpired  insurance  as  of  this  date 
30 


(No.  1) 


Taxes 

Taxes  Accrued 

To  bring  onto  the  books  the  liability 
for  taxes  accrued  to  date 
30 


(No.  2) 


(No.  3) 


Accrued  Interest  on  Notes  Receivable 
Interest  on  Notes  Receivable 

To  bring  onto  the  books  the  interest  accrued 
to  date  on  interest  bearing  notes  receivable: 
J.  A.  Shore's  note  of  10/15/21,  $500, 

8  mos.  15  days  at  6%  $21  25 

R.   C.   Cram's  note  of  4/3/22,  $230. 

2  mos.  27  days  at  6%  3  35 
Total,  as  above, 
30 


$24  60 


(No.  4) 


Interest  on  Notes  Payable 

Interest  Accrued  on  Not-es  Payable 

To  bring  onto  the  books  the  interest  accrued 
to  date  on  interest  bearing  notes  payable: 
Note  of  4/1/22  favor  First  Nat'l  Bank, 
$5,000,  90  days  at  6% 
30 


Office  Supplies  on  Hand 
Office  Expenses 

To  bring  onto  the  books  the  cost  of 
office  supplies  on  hand  as  of  this  date 
30 


(No.  5) 


Depreciation  of  Building 

Reserve  for  Depreciation  of  Building 

Estimated  depreciation  on  the  build- 
ing for  the  six  months  ending  6/30/22. 
Figured  on  cost  ($37,500)  at  the  rate  of 
2%  per  annum 
30 


(No.  6) 


Depreciation  of  Furniture  and  Fixtures              (No.  7) 
Reserve  for  Depreciation  of  Furniture  and  Fixtures 
Estimated    depreciation    on    furniture 
and  fixtures  for  the  six  months  ending 
6/30/22.     Figured  on  cost   ($5,820)   at 
the  rate  of  10%  per  annum 
30 


Loss  on  Bad  Accounts  and  Notes  Receivable    (No.  8) 
Reserve    for    Loss   on   Bad   Accounts   and 
Notes  Receivable 

To  set  aside  from  the  profits  of  the 
period  H%  of  the  net  sales  to  provide 
for  future  losses  on  bad  accounts  and 
notes  receivable. 

.005X882,687.19  =$413.44,  as  above 


102 


75 


150 


375 


291 


413 


00 


50 


00 


2601 


102 


24 


60 


60 


75 


00 


150 


376 


89 


00 


291 


00 


413' 


FINANCIAL  STATEMENTS  AND  REPORTS  21 

Form  IV — Adjusting  Journal  Entries. — It  becomes  necessary  at  the  end 
of  each  fiscal  period  to  make  certain  corrections  or  adjustments  in  the  ac- 
counts in  order  to  bring  the  books  into  agreement  with  facts  as  they  actually 
exist.  If  the  books  are  to  be  closed,  these  entries  should  be  entered  in  the 
journal  in  regular  form  as  shown  in  Form  IV.  It  is  essential  that  the  par- 
ticulars for  these  entries  be  very  complete.  From  the  journal,  the  entries 
are  posted  to  the  ledger,  from  which  an  adjusted  trial  balance  is  then  taken. 
If  a  working  sheet  is  used,  the  adjusting  entries  are  posted  to  the  "Adjust- 
ments" column  of  same  as  shown  in  Form  V.  When  monthly  statements 
are  desired  and  the  books  are  to  be  closed  annually,  the  adjustments  may 
be  omitted  from  the  journal  and  may  be  shown  only  in  the  "Adjustments" 
column  of  the  working  sheet.  It  is  considered  better  practice  even  in  that 
case  to  write  them  out  in  proper  form  on  loose  paper  before  entering  on 
working  sheet  so  that  proper  explanations  may  be  placed  on  record.  The 
entries  should  be  numbered  on  the  working  sheet  to  correspond  with  those 
in  the  journal. 


22 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  V. — Working 
HALL  AND 

Working  Sheet — Six  Months'  Period, 


Trial  Balance  per  Books 

Adjustments 

r 

Debits 

Credits 

Debits 

Credits 

Land 

55  000 

00 

Building 

37  500 

00 

Furniture  and  Fixtures 

5  820 

00 

Cash 

7  682 

53 

Accounta  Receivable 

23  731 

40 

Notes  Receivable 

730 

00 

Inventory 

24  260 

75 

Mortgage  Payable 

35  000 

00 

Accounts  Payable 

9  840 

62 

Notes  Payable 

5  000 

00 

C.  R.  Marvin,  Salary 

250 

00 

Reserve  for  Depreciation  of  Building 

7  500 

00 

m 

375 

00 

Reserve  for  Depreciation  of  Furniture 

and  Fixtures 

1  750 

00 

#7 

291 

00 

Reserve  for  Loss  on  Bad  Accounts  and 

Notes  Receivable 

169 

80 

#8 

413 

44 

H.  B.  Hall,  Capital 

60  000 

00 

H.  B.  Hall,  Drawings 

1  869 

00 

C.  R.  Marvin,  Capital 

30  000 

00 

C.  R.  Marvin,  Drawings 

4  705 

00 

Sales  (Returns  $3,421.70) 

82  687 

19 

Purchases  (Returns  $4,207.80) 

53  321 

60 

Freight,  Express,  and  Cartage  Inward 

1  924 

34 

Traveling  Expenses 

2  107 

40 

Salaries  and  Wages 

9  369 

72 

Delivery  Expenses 

1  290 

81 

Office  Expenses 

1  587 

10 

#5 

150 

89 

Insurance 

435 

00 

#1 

260 

00. 

Interest  on  Notes  Receivable 

136 

24 

#3 

24 

60 

Interest  on  Notes  Payable 

238 

90 

H 

75 

00 

Interest  on  Mortgage  Payable 

875 

00 

Cash  Discounts  on  Purchases 

486 

72 

Cash  Discounts  on  Sales 
Unexpired  Insurance 

372 
232  820 

02 

#1 

260 

00 

57_ 

232  820 

sT 

Taxes 

#2 

102 

50 

Accrued  Taxes 

#2 

102 

50 

Accrued  Interest  on  Notes  Receivaljle 

»3 

24 

60 

Accrued  Interest  on  Notes  Payable 

#4 

75 

00 

Office  Supplies  on  Hand 

#5 

150 

89 

Depreciation  of  Building 

#6 

375 

00 

Depreciation  of  Furniture  and  Fixtures 

#7 

291 

00 

Loss  on  Bad  Accounts  and  Notes 

Receivable 
Gross  Trading  Profit 

#8 

413 

44 

43 

1  692 

1  692 

iT 

Net  Profit 

FINANCIAL  STATEMENTS  AND  REPORTS 


23 


Sheet  (12  Columns). 

MARVIN 

December  31,  1921,  to  June  30,  1922. 


Adjusted  Trial  Balance 


Debits 


Credits 


TradinK 


Debits 


Credits 


Profit  and  Loss 


Expenses 


Income 


Assets  and  Liabilities 


Assets 


Liabilities 


55  000  00 

37  500|00 

5  820  00 


7  682 

23  731 
730 

24  260 


1  869 
4  705 

53  321 

1  924 

2  107 
9  369 
1  290 
1  436 

175 

313 

875 

372 

260 
102 

24 

150 
375 
291 

413 
234  102 


35  000 

9  840 

5  000 

250 

7  875 

2  041 


160 


486 


234  102 


24  260 


3  421 
57  529 


30  815 


116  027 


25  710 


40 


86  108 
4  207 


116  027  15 


1  924 

2  107 
9  369 
1  290 
1  436 

175 

313 
875 

372 


102 


375 
291 


413 


12  416 


31  462 


50 


44 


46 


160 


486 


72 


30  815 


31  462 


55  000^00 
37  500  00 
5  820  00 
7  682  53 
23  731  40 
730  00 


25  710 


40 


5  498 


4  705 


40 


00 


260 

24 
150 


00 


60 


HaU 

Marvi  n 

166  813  22 


35  000,00 


9  840 

5  000 

250 

7  875 

2  041 

583 
60  000 

3  629 
30  000 


8  277i 
4  133 


166  813 I 22 

I 


24  'ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  V — Working  Sheet. — This  form  illustrates  an  ordinary  twelve- 
column  working  sheet.  The  working  sheet  is  not  a  part  of  the  financial 
statement  properly  speaking,  but  is  used  for  analyzing  the  trial  balance  and 
making  adjustments  preparatory  to  setting  up  the  balance  sheet  and  profit 
and  loss  statement  in  proper  form.  If  the  books  are  to  be  closed,  its  only 
purpose  is  to  prove  the  arithmetical  results  of  the  statements  before  setting 
them  up.  If  the  books  are  not  to  be  closed,  the  working  sheet  is  almost 
indispensable  for  making  adjustments,  analysis  of  the  ledger,  etc. 

There  is  no  fixed  form  of  working  sheet.  The  details  vary  according 
to  the  wishes  of  the  individual  preparing  the  same.  The  form  shown  here- 
with contains  the  essentials  as  adopted  by  the  best  accountants. 

Attention  is  cal|ed  to  the  handling  of  the  inventory  accounts.  The 
merchandise  items  are  handled  through  a  trading  account  in  the  ledger; 
therefore,  trading  columns  are  used  in  the  working  sheet.  The  old  inven- 
tory, $24,260.75,  is  charged  to  trading,  while  the  new  inventory,  $25,710.40, 
is  credited  to  trading  and  set  up  as  an  asset,  thus  keeping  the  equilibrium 
of  the  accounts.  The  details  concerning  sales  and  purchases  are  also 
inserted  in  the  trading  columns  so  as  to  be  at  hand  in  preparing  the  profit 
and  loss  statement. 

The  problem  states  specifically  that  freight  inward  on  merchandise  pur- 
chases is  not  considered  a  part  of  the  cost  of  goods  purchased.  This  item 
is  accordingly  shown  as  an  expense  in  the  working  sheet  and  appears  as  an 
operating  expense  in  the  profit  and  loss  statement  (Form  VII).  When 
freight  is  considered  as  a  part  of  the  cost  of  goods,  which  is  the  usual  custom, 
it  should  be  shown  in  the  debit  trading  column  of  the  working  sheet  and  in 
the  cost  of  goods  sold  section  of  the  profit  and  loss  statement. 


FINANCIAL  STATEMENTS  AND  REPORTS 


25 


Form  VI. — Balance  Sheet — Variation  of  Report  Form. 
HALL  AND   MARVIN 
Balance  Sheet,  June  30,  1922 


Fixed  Assets: 


Land  (cost) 

Building  (cost) 

Less — Reserve  for  Depreciation 

Furniture  and  Fixtures  (cost) 
Less — Reserve  for  Depreciation 

Current  Assets: 


Unexpired  Insurance 
Office  Supplies  on  Hand 

Total  Assets 


Assets 


$37  500  00 
7  875  00 


«5  820  00 
2  041  00 


Cash  on  Hand 
Accounts  Receivable 
Less — Reserve  for  Loss  on  Bad  Ac- 
counts and  Notes  Receivable 

Notes  Receivable 

Accrued  Interest  on  Notes  Receivable 

Merchandise  on  Hand 

Deferred  Charges  to  Profit  and  Loss: 


$23  731  40 
583  24 


Liabilities  and  Net  Worth 


Fixed  Liabilities: 


Mortgage  Payable 
Current  Liabilities: 


Accounts  Payable 

Notes  Payable 

Accrued  Interest  on  Notes  Payable 

Accrued  Taxes 

Due  C.  R.  Marvin  on  Salary  Account 

Total  Liabilities 


55  000 
29  625 

3  779 


H.  B.  Hall's  Net  Worth: 


Capital  Investment 
Add — Profits  Accumulated  to  Decem- 
ber 31,  1921 
Two-thirds     Net     Profit     for     Six 
Months  Ending  June  30,  1922 

Total 

Less — Drawings,  December  31, 1921, 
to  June  30.  1922 

C.  R.  Marvin's  Net  Worth: 


$3  629  40 
8  277  64 


$11  907  04 
5  498  40 


7  682 


23  148 

730 

24 

25  710 


260 
150 


Capital  Investment 
Deduct — Drawings,     December 
1921,  to  June  30,  1922 


31, 


Less — One-third    Net    Profit  for  Six 
Months  Ending  June  30,  1922 


$4  705  00 
4  138  82 


Total  Liabilities  and  Net  Worth 


9  840 

5  000 

75 

102 

250 


60  000 


00 


00 


64 


88  404 


00 


30  000 


566 


00 


18 


57  295 ( 


410; 


146  110 


58 


35  000 


00 


15  268 


12 


50  268 


66  408 


64 


;82 


146  110 


58 


26  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  VI — Balance  Sheet. — This  form  represents  the  report  form  of  bal- 
ance sheet  as  adapted  to  the  accounts  of  a  partnership. 

The  reserves  are  shown  as  deductions  from  the  correlative  assets.  Balance 
due  partner  on  salary  account  is  shown  as  a  current  liability. 

Special  attention  is  called  to  the  "Capital"  section.  Each  partner's  capital 
is  set  up  separately  showing  details  as  to  investments,  drawings,  and  share 
of  profits  for  the  current  period. 

The  term  "net  worth"  is  used  here  instead  of  "capital."  While  these 
terms  are  used  synonymously,  "net  worth"  would  seem  to  be  more  appro- 
priate in  a  partnership,  while  "capital"  would  be  the  better  term  for  a  cor- 
poration.    Either  may  be  used  for  single  proprietorship. 


FINANCIAL  STATEMENTS  AND  REPORTS  27 

Form  VII.  — Profit  and  Loss  Statement  — Report  Form. 

HALL   AND    MARVIN 

Exhibit  B 

Profit  and  Loss  Statement  for  Six  Months  Ending  June  30,  1922 

Gross  Sales  $86  108  89 

Less — Returns  and  Allowances  3  421  70 

Net  Sales  $82  687  19 

Deduct — Cost  of  Goods  Sold: 


Goods  on  hand,  December  31,  1921  $24  260  75 

Gross  Purchases  $57  529  46 

Less — Returns  and  Allowances         4  207  86 
Net  Purchases  53  321  60 

Total  Cost  of  Goods  $77  582  35 

Less — Goods  on  hand,  June  30,  1922 
Gross  Trading  Profit 

.  Deduct — Operating  Expenses: 


Freight,  Express  and  Cartage  Inward 
Traveling  Expenses 
Salaries  and  Wages 
Delivery  Expenses 
Office  Expenses 
Taxes 
Insurance 

Depreciation  of  Buildings 
Depreciation  of  Furniture  and  Fixtures 
Net  Trading  Profit 

Add — Other  Income  Items: 
Interest  on  Notes  Receivable 
Cash  Discount  on  Purchases 
Total  Income 

Deduct — Other  Expense  Items: 


Interest  on  Notes  Payable 

Interest  on  Mortgage  Payable 

Cash  Discount  on  Sales 

Loss  on  Bad  Debts  and  Accounts  Receivable 
Net  Profit  for  the  Period 
H.  B.  Hall— two-thirds 
C.  R.  Marvin — one-third 


25  710  40 

51  871  95 

$30  815  24 

$  1  924  34 

2  107  40 

9  369  72 

1  290  81 

1  436  21 

102  50 

175  00 

375  00 

291  00 

17  071  98 

$13  743  26 

$   160  84 

486  72 

647  56 

$14  390  82 

$   313  90 

875  00 

372  02 

413  44 

1  974  36 

$12  416  46 

$  8  277  64 

4  138  82 

$12  416  46 

$12  416  46 

28  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  VII — Profit  and  Loss  Statement — Report  Form. — This  form  i^resonts 
little  that  is  new.  The  chief  point  of  difference  between  this  form  as  used 
for  a  partnership  and  that  for  a  single  proprietorship  is  the  manner  of  show- 
ing the  division  of  profits. 

Attention  has  already  been  called  to  the  fact  that  Freight,  Express  and 
Cartage  Inward  is  shown  as  an  operating  expense  rather  than  as  an  addition 
to  the  cost  of  goods.  Depreciation  charges  are  considered  as  operating 
expenses  while  Loss  on  Bad  Debts  is  shown  under  Other  Expense  Items. 


FINANCIAL  STATEMENTS  AND  REPORTS 


29 


Form  VIII. — Closing  Jotxmal  Entries. 

HALL  AND  MARVIN 

Closing  Entries,  June  30,  1922 


Trading 
Inventory 

Goods  on  hand  12/31/21  per  inventory 
30 


Trading 
Purchases 

Net  pvirchases  for  six  months  ending  6/30/22 
30 


24  260  75 


Sales 
Trading 

Net  sales  for  six  months  ending  6/30/22 
30 


Inventory 
Trading 

Goods  on  hand  6/30/22  per  inventory 
30 


Trading 

Profit  and  Loss 

To  transfer  to  Profit  and  Loss  account  the 
gross  trading  profit  for  the  six  months  ending 
6/30/22  as  represented  by  the  balance  of  the 
Trading  account 

30- 


Interest  on  Notes  Receivable 
Cash  Discounts  on  Purchases 
Profit  and  Loss 

To  transfer  to  Profit  and  Loss  account  the 
balances  of  the  accounts  representing  extrane- 
ous income  for  the  six  months  ending  6/30/22 
30 


Profit  and  Loss 

Freight,  Express  and  Cartage  Inward 

Traveling  Expenses 

Salaries  and  Wages 

Delivery  Expenses 

Office  Expenses 

Taxes 

Insurance 

Depreciation  of  Building 

Depreciation  of  Furniture  and  Fixtures 

To  transfer  to  Profit  and  Loss  account  the 
balances  of  the  accounts  representing  operating 
expenses  for  the  six  months  ending  6/30/22 

30 


Profit  and  Loss 

Interest  on  Notes  Payable 

Interest  on  Mortgage  Payable 

Cash  Discounts  on  Sales 

Loss  on  Bad  Accounts  and  Notes  Receivable 

To  transfer  to  Profit  and  Loss  account  the 
balances  of  the  accounts  representing  extrane- 
ous expenses  for  the  six  months  ending  6/30/22 
30 


53  321 


82  687 


25  710 


30  815 


160 
486 


17  071 


1  974 


60 


19 


24 


98 


36 


12  416  46 


24  260 


53  321 


82  687 


25  710 


30  815 


647 


1  924 

2  107 
9  369 
1  290 
1  436 

102 
175 
375 
291 


313  90 
875  00 
372  02 
413 


75 


60 


19 


24 


56 


8  277 
4  138 


Profit  and  Loss 

H.  B.  Hall,  Dra«-ings 
C.  R.  Marvin,  Drawings 

To  transfer  to  the  partners'  drawings  ac- 
counts the  net  profit  for  the  six  months  ending 
6/30/22  in  the  proportion  of  two-thirds  to 
H.  B.  Hall  and  one-third  to  C.  R.  Marvin 

Form  VIII — Closing  Journal  Entries. — This  form  presents  the  method  of 

closing  the  merchandise  items  through  a  Trading  account  instead  of  through 
Purchases  as  shown  in  Form  III.  No  accounts  were  carried  with  Sales  and 
Purchases  Returns  in  this  problem,  so  those  items  are  already  in  the  Sales 
and  Purchases  accounts,  and  no  closing  entries  are  necessary  to  place  them 
there.  Aside  from  the  method  of  handling  trading  items,  the  method  of 
closing  is  similar  to  that  shown  in  Form  III. 


30 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  IX. — Balance  Sheet, 

THE   HARMON- 

Balance  Sheet, 


Assets 


Fixed  Assets: 


Land  (cost) 

Buildings  (cost) 

Less — Reserve  for  Depreciation 

Sales    Department    Furniture    and    Fixtures 

(cost) 
Less — Reserve  for  Depreciation 

OflSce  Furniture  and  Fixtures  (cost) 
Less — Reserve  for  Depreciation 


$155  000  00 
24  500  00 


S9  200  00 
2  730  00 


$5  000  00 
1  250  00 


Goodwill 


Total  Fixed  Assets 


Sinking  Fund  Investments: 


Securities  and  Cash  in  Hands  of  Trustees 
Outside  Investments: 


Securities  Owned  (cost) — market  value  $17,268.00 
Vacant  Land  (cost,  including  taxes  to  June  30,  1922) 

Total  Outside  Investments 

Current  Assets: 


Cash  (in  banks  and  at  ofBce) 
Accounts  Receivable 
Less  —  Reserve    for    Loss    on 
Doubtful  Accounts 
Reserve  for  Cash  Discounts 

Due  from  Subscribers  to  Capital 

Stock — Common 
Notes     Receivable 
Merchandise     on     Hand     (cost) 
Less — Reserve    for    Adjustment 

of  Inventory  Values 

Office  Supplies  on  Hand 

Total  Current  Assets 
Prepaid  Items: 


$63  284  36 


$2  789  60 
1  200  00 


$160  520  60 
8  600  00 


Unexpired  Insurance 

Interest  Prepaid  on  Notes  Discounted 

Total  Prepaid  Items 


iDeferred  Charges  to  Profit  and  Loss: 


Bond  Discount  and  Expenses  Unextinguished 
Organization  Expenses  Unextinguished 

Total  Deferred  Charges  to  Profit  and  Loss 


Total  Assets 


72  000 
130  500 


6  470 
3  750 


18  760  00 
18  724  30 


7  829 


59  294 


18  000 
6  500 


152  020 
267 


1  950 
136 


19  500 
14  300 


89 


76 


212  720 
100  000 


46  728 


37  484 


50 


30 


243  912 


2  086 


33  800 


76 


70 


00 


676  732  25 


Note — There  are  in  the  treasury  250  shares  of  common  stock  donated  to  the  company 


FINANCIAL  STATEMENTS  AND  REPORTS 


31 


Account  Form — Corporation. 
STREETER   COMPANY 
June  30,  1922 


Funded  Debt: 


Liabilities  and  Capital 


Current  Liabilities: 


Five  Per  Cent  First  Mortgage  Sinking  Fund 
Bonds — Due  January  1,  1926 — Author- 
ized Issue  $100,000.00: 

Issued 

Less — Retired  through  Sinking  Fund 


Six  Per  Cent  Debenture  Bonds,  Due  July  1,   1930 
Total  Funded  Debt 


Notes  Payable 
Accounts  Payable 
Dividends  Payable: 

On  Seven  Per  Cent  Preferred  Stock  (3}^% 

semi-annual,  due  July  5,  1922) 
On  Common  Stock  (4%  semi-annual,  due 
July  15,  1922) 
Accrued  Items,  including  interest,  wages  and 
taxes 

Total  Current  Liabilities 

Capital  Stock — Common,  Subscribed  and  Un- 


issued—SOOShares 
Total  Liabilities 


Capital  Stock: 


Seven  Per  Cent  Preferred — ^Authorized  Issue 
1500  Shares,  Par  $100: 
Full  Paid  and  Issued,  1000  Shares 
Common — Authorized    Issue    3000    Shares, 
Par  $100: 
Full  Paid  and  Issued.  2000  Shares: 
In  Hands  of  Stockholders,  1750  Shares 
In  Treasury,  250  Shares 

Total  Capital  Stock 
Working  Capital  Donated — (Proceeds  of  sale 


of  250  shares  of  common  stock   from  the 
treasury) 
Appropriated  Surplus: 


Reserve  for  Federal  Tax  (1922) 
Reserve  for  Sinking  Fund  Requirements 
Surplus : 


Balance,  December  31,  1921  $30  389  67 

Add — Net  Income,  Six  Months 
Ending  June  30,  1922,  per 
Profit  and  Loss  Statement  22  523  97 

Less — Reserve   for   Federal   In- 
come Tax  (1922) 
Dividends  Declared: 
On   Preferred 
Stock    (3y2% 
semi-annual)     $3  500  00 
On    Common 
Stock     (4% 
semi-annual)       7  000  00     10  500  00 

Reserve   for  Sink-     

ing  Fund 

Net  Surplus 

Total  Capital 

Total  Liabilities  and  Capital 


$5  000  00 


8  668  00 


1 

$92  000  00 
18  000  00 

1 

74  000 
30  000 

00 
00 

104  000 

00 

,  1930 

24  000 
86  732 

00 
46 

$3  500  00 

7  000  00 

10  500 

10  727 

00 
65 

131  960 

11 

30  000 

00 
11 

265  960 

100  000 

00 

$175  000  00 
25  000  00 

200  000 

00 

300  000 

00 

21  630 

00 

5  000 
55  396 

00 
50 

$52  913  64 

24  168  00 

28  745 

64 

410  772 

14 

676  732 

25 

7—^ 

by  the  incorporators  for  the  purpose  of  raising  additional  working  capital 


32  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  IX — Balance  Sheet — Account  Form — Corporation. — This  form 
ilhistrates  the  mctliod  of  setting  up  the  account  or  two-page  form  of  state- 
ment commonly  used  when  the  items  are  so  numerous  as  not  to  go  on  a 
single  page.  It  has  the  advantage  of  setting  the  various  asset  and  liability 
groups  opposite  each  other  for  comparative  purposes. 

In  this  form,  valuation  reserves  are  shown  as  deductions  from  correlative 
assets,  while  the  capital  reserves  (in  this  instance  Reserve  for  Sinking  Fund 
and  Reserve  for  Federal  Income  Tax)  are  shown  in  the  capital  section  as 
appropriated  Surplus. 

Attention  is  also  called  to  the  method  of  showing  treasury  stock  donated 
as  a  footnote.  In  this  form,  surplus  is  analyzed  in  the  balance  sheet  itself. 
Frequently  the  net  amount  only  is  shown,  the  details  being  set  forth  in  a 
supporting  statement. 

The  method  of  handling  Federal  income  taxes  should  be  carefully  noted. 
The  Federal  income  taxes  item  under  current  liabilities  represents  the  unpaid 
installments  on  1921  taxes,  bill  for  which  was  rendered  on  March  15,  1922. 
The  estimated  tax  for  1922  to  June  30  is  set  up  in  the  form  of  a  reserve. 
This  item  appears  as  a  deduction  from  net  income  for  the  six  months  ending 
June  30,  1922,  and  also  as  a  reserve  item  under  appropriated  surplus.  It 
will  be  carried  thus  until  the  actual  liability  is  ascertained,  when  it  will  be 
carried  as  a  current  liability. 


FINANCIAL  STATEMENTS  AND  REPORTS  33 

Form  X. — Profit  and  Loss  Statement — Variation  in  Report  Form. 
THE   HARMON-STREETER   COMPANY 

Profit  and  Loss  Statement  for  the  Six  Months  Ending  June  30,  1922 

Gross  Sales  $746  829  60 

Less — Returns  and  Allowances  12  384  30 

Net  Sales  $734  465  30 

Deduct — Cost  of  Goods  Sold: 


Inventory,  December  31,  1921  $184  962  38 

Net  Purchases: 

Gross  Purchases  $569  827  40 

Less — Returns    and    Allow- 
ances 18  260  39       551  567  01 
Freight  and  Hauling  Inward  5  829  50     $742  358  89 
Less— Inventory,  June  30,  1922  160  520  60       581  838  29 
Gross  Profit  on  Sales  jl52  627  01 

Deduct — Operating  Expenses: 
Selling  Expenses: 

Salesmen's  Salaries  S26  432  80 

Traveling  Expenses  20  869  40 

Shipping  Expenses  5  942  60 

Taxes  and  Insurance  on  Stock  1  286  50 

Taxes  and  Insurance  on  Sales  Department 

Furniture  and  Fixtures  150  64 

Depreciation  of  Sales  Department  Furni- 
ture and  Fixtures  765  00 
Propiortion  of  Expense  of  Building  Main- 
tenance (75%)                                                         11  446  87       $66  893  81 
General  Administrative  Expenses: 

Officers'  Salaries  $37  853  00 

Office  Salaries  12  272  46 

Office  Expenses  and  Supplies  1  781  30 

Taxes  and  Insurance  on  OflSce  Furniture 

and  Fixtures  110  75 

Depreciation  of  Office  Furniture  and  Fix- 
tures 465  00 
Proportion  of  Expense  of  Building  Main- 
tenance (25%)                                                           3  815  63 
Net  Operating  Income 
Add — Other  Income; 

Income  on  Securities  Owned 
Interest  on  Notes  Receivable 
Cash  Discounts  on  Purchases 
Profit  on  Sale  of  Securities 
Total  Income 

Deduct — Other  Charges: 
Interest  on  Funded  Debt 
Interest  on  Notes  Payable 
Cash  Discounts  on  Sales 
Premiums  on  Redeemed  Bonds 
Bond  Discount  and  Expenses  Written  Ofif 
Organization  Expenses  Written  Oflf 
Loss  on  Bad  Accounts 
Loss  from  Sale  of  Liberty  Loan  Bonds 
Net  Income  before  providing  for  Federal  Income  Tax 
Less — Provision  for  Federal  Income  Taxes  for  1922 
Net  Income  after  provision  for  taxes 

Add— Surplus,  January  1,  1922 
Gross  Surplus 

Deduct — Surplus  Charges: 
Dividends  Declared 
Provision  for  Sinking  Fund 
Surplus,  June  30.  1922 


56  298  14 

123  191  95 

$29  435  06 

$924  00 
1  832  50 
8  269  40 
3  466  77 

14  492  67 

$43  927  73 

$2  750  00 
1  589  40 
4  387  30 

1  650  00 
910  00 

2  340  00 
4  277  06 

3  500  00 

21  403  76 

$22  523  97 

5  000  00 

$17  523  97 

30  389  67 

$47  913  64 

$10  500  00 
8  668  00 

19  168  00 

$28  745  64 

34  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  X — Profit  and  Loss  Statement — Report  Form. — This  statement, 
while  used  for  a  corporation,  presents  very  little  that  is  new.  The  items  are 
somewhat  more  numerous. 

Attention  is  called  to  the  method  of  showing  Surplus  at  the  end  of  the 
statement.  The  net  profit  available  as  surplus  for  the  period  is  added  to 
surplus  on  hand  at  beginning  of  period  and  from  this  is  deducted  the  appro- 
priations of  surplus,  the  result  being  surplus  on  hand  at  the  close  of  the 
period.  This  serves  as  an  analysis  of  surplus,  the  details  of  which  may  then 
be  omitted  from  the  balance  sheet  if  desired.  Attention  is  also  called  to 
slight  differences  in  terminology  and  to  new  accounts  introduced  especially 
in  "Other  Income"  and  "Other  Charges"  groups. 

The  method  of  showing  provision  for  Federal  Income  Taxes  as  a  separate 
deduction  should  receive  special  attention. 


FINANCIAL  STATEMENTS  AND  REPORTS 


35 


Form  XI. — Closing  Journal  Entries — Corporation. 

THE    HARMON-STREETER   COMPANY 

Closing  Entries,  June  30,  1922 


To  Sales  Returns  and  Allowances 

To  close  into  the  Sales  account  the  sales 
returns  and  allowances  for  the  six  months 
ending  June  30,  1922 

Purchase  Returns  and  Allowances 
To  Purchases 

To  close  into  the  Purchases  account  the 
purchase  returns  and  allowances  for  the  six 
months  ending  June  30,  1922 

Purchases 

To  Freight  and  Hauling  Inward 

To  close  into  the  Purchases  account  the 
freight  and  hauling  inward  on  purchases  for 
the  six  months  ending  June  30,  1922 

Purchases 

To  Inventory 

Cost  of  goods  on  hand  December  31,  1922 

Inventory 
To  Purchases 

Cost  of  goods  on  hand  June  30,  1922 


To  Cost  of  Goods  Sold 

Net  Sales  for  the  six  months  ending  June 
30    1922: 

Gross  sales  $746  829  60 

Less — Returns  and  Allow- 
ances 12  364  30 


Net  Sales,  as  above 


$734  465  30 


Cost  of  Goods  Sold 
To  Purchases 

Cost  of  goods  sold  for  the  six 
months  ending  June  30,  1922: 

Inventory  12/31/21  $184  962  38 

Net  Purchases: 
Gross   pur- 
chases $569  827  40 
Less  —  Re- 
turns and 
allowances       18  260  39     551  567  01 


5  829  50 


Freight  and  hauling  inward 


Less— Inventory  6/30/22 


Cost  of  Goods  Sold,  as  above  $581  838  29 


$742  358  89 
160  520  60 


Cost  of  Goods  Sold 
To  Profit  and  Loss 

Gross  profit  on  sales  for  six 
months  ending  June  30,  1922: 

Net  sales  $734  465  30 

Less — Cost  of  sales  581  838  29 


Gross  Profit,  as  above 


$152  627  01 


12  364 


18  260  39 


5  829  50 


184  962 


160  520 


734  465 


581  838 


152  627 


30 


38 


60 


01 


12  364 


18  260 


5  829 


184  962 


160  520 


734  466 


30 


39 


50 


38 


60 


30 


581  838 


29 


152  627 


01 


36  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Closing  Entries,  June  30,  1922-Concluded 


Income  on  Securities  Owned 
Interest  on  Notes  Receivable 
Cash  Discounts  on  Purchases 
Profit  on  Sale  of  Securities 
To  Profit  and  Loss 

To  close  into  Profit  and  Loss  account  the 
items  of  extraneous  income  for  the  six  months 
ending  June  30,  1922 

Profit  and  Loss 

To  Salesmen's  Salaries 
Traveling  Expenses 
Shipping  Expenses 
Taxes  and  Insurance  on  Stock 
Taxes. and  Insurance  on  Sales  Department 

Furniture  and  Fixtures 
Depreciation   of  Sales   Department  Furni- 
ture and  Fixtures 
Building  Maintenance 
Officers,  Salaries 
Office  Salaries 

Office  Expenses  and  Supplies 
Taxes  and  Insurance  on  Office  Furniture 

and  Fixtures 
Depreciation  of  Office  Furniture  and  Fix- 
tures 
To  close  into  Profit  and  Loss  account  the 
accounts  representing  the  operating  expenses 
for  the  six  months  ending  June  30,  1922 

Profit  and  Loss 

To  Interest  on  Funded  Debt 
Interest  on  Notes  Payable 
Cash  Discounts  on  Sales 
Premiums  on  Redeemed  Bonds 
Bond  Discount  and  Expenses  Written  Off 
Organization  Expenses  Written  Off 
Loss  on  Bad  Accounts 
To  close  into  Profit  and  Loss  account  the 
items  of  extraneous  expense  for  the  six  months 
ending  June  30,  1922 

Profit  and  Ix)ss 
To  Surplus 

To  transfer  to  Surplus  account  the  net  in- 
come for  the  six  months  ending  June  30,  1916 


$924 
1  832 
8  269 
3  466 


123  191 


17  903 


26  023 


76 


97 


$14  492 


26  432 

20  869 

5  942 

1  286 

150 

765 

15  262 

37  853 

12  272 

1  781 

110 

465 


2  750 
1  589 
4  387 

1  650 
910 

2  340 
4  277 


26  023 


67 


97 


Form  XI — Closing  Journal  Entries — Corporation. — The  method  used 
in  handling  trading  items  is  similar  to  that  employed  in  Form  III.  The 
expense  items  are  handled  in  the  same  manner.  The  only  difference  is  the 
method  of  handling  Profit  and  Loss.  This  account  is  closed  into  Surplus 
in  the  case  of  a  corporation. 


FINANCIAL  STATEMENTS  AND  REPORTS  37 

MODEL  EXERCISE  m 
Financial  Statements  for  a  Manufacturing  Corporation 

MODEL  MANUFACTURING  COMPANY 
Trial  Balance— December  31,  1922 

Land  and  Buildings 

Machinery 

Power  Plant  Equipment 

Shafting  and  Belting 

Furniture  and  Fixtures 

Goodwill 

Securities  Owned 

Cash  in  Banks 

Imprest  Cash  Fund 

Accounts  Receivable 

Notes  Receivable 

Advances  to  Salesmen 

Accrued  Interest  on  Notes  Receivable 

Raw  Materials  (On  hand — December  31,  1921, 

$6,800;  gross  purchases,  $95,600) 
Manufacturing  (Goods  in  process,  Dec.  31,  1921) 
Finished  Goods,  December  31,  1921 
Factory  Supplies  on  Hand 
Office  Supplies  on  Hand 
Taxes  Paid  in  Advance 
Insurance  Paid  in  Advance 
Interest  on  Notes  Payable  Paid  in  Advance 
Legal  Expenses  Deferred 
Capital  Stock — Preferred  (750  shares,  par 

value  $100) 
Capital  Stock — Common  (1000  shares,  par 

value  $100) 
Surplus 
Real  Estate  Mortgage  Assumed  in  Purchase 

of  property 
Accounts  Payable 
Notes  Payable 

Accrued  Interest  on  Mortgage  Payable 
Accrued  Interest  on  Notes  Payable 
Accrued  Salaries  and  Wages 
Accrued  Expenses 

Reserve  for  Depreciation  of  Buildings 
Reserve  for  Depreciation  of  Factory  Machinery 

and  Equipment 
Reserve  for  Depreciation  of  Furniture  and  Fixtures 
Reserve  for  Loss  on  Bad  Debts 


$110  800  00 

30  670  00 

19  500  00 

2  500  00 

4  500  00 

25  000  00 

15  000  00 

9  280  50 

300  00 

47  250  00 

3  000  00 

800  00 

50  00 

102  400  00 

)  10  360  00 

46  700  00 

200  00 

150  00 

400  00 

360  00 

75  00 

2  600  00 

$75  000  00 

100  000  00 

14  250  00 

60  000  00 

26  500  00 

5  000  00 

1  800  00 

62  50 

780  00 

250  00 

16  700  00 

19  100  00 

res 

600  00 

5  280  00 

71767 


$239  909  00 

$4  260  40 

1  720 

00 

1 

620 

00 

54 

620 

00 

5 

940 

30 

2 

600 

00 

3 

680 

20 

1 

562 

50 

2 

289 

40 

38  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Trial  Balance — December  31,  1922 — Concluded 

Sales  of  Finished  Goods 

Sales  Returns  and  Allowances 

Purchase  Returns  and  Allowances 

Freight  and  Hauling  Inward 

Direct  Labor 

Superintendence 

Fuel  Used 

Salaries  of  Engineer  and  Firemen 

Taxes  and  Insurance  on  Factory  Buildings 

Depreciation  of  Factory  Buildings 

Taxes  and  Insurance  of  Factory  Machinery  and 

Equipment  937  50 

Depreciation  of  Factory  Machinery  and  Equipment  2  500  00 
Repairs  to  Factory  Machinery  and  Equipment  800  00 

Factory  Office  Salaries  and  Expenses  3  580  65 

Advertising  5  000  00 

Salaries  of  Salesmen  10  650  00 

Traveling  Expenses  6  780  30 

Delivery  Expenses  2  684  00 

General  Office  Salaries  and  Expenses  10  294  60 

Taxes  and  Insurance  on  Office  Building  300  00 

Depreciation  of  Office  Building  864  00 

Interest  on  Notes  Receivable  280  85 

Income  on  Securities  Owned  180  00 

Interest  on  Mortgage  Payable  1  800  00 

Interest  on  Notes  Payable  289  00 

Loss  on  Bad  Debts  1  564  00 

Legal  Expenses  Extinguished  900  00     

$557  412  35     $557  412  35 
Inventories,  December  31,  1922: 

Raw  Materials  $7  100  00 

Goods  in  Process  12  900  00 

Finished  Goods  44  800  00 

Note:  During  the  year,  dividends  amounting  to  7%  on  the  preferred 
stock  and  6%  on  the  common  stock  have  been  declared  and  paid. 

Form  XII — Balance  Sheet — Account  Form. — This  form  illustrates  an 
arrangement  of  the  balance  sheet  for  a  manufacturing  corporation.  Prop- 
erty or  Capital  Assets  are  shown  first  on  the  asset  side  while  Capital  Lia- 
bilities including  Capital  Stock  are  shown  first  on  the  liability  side.  This  is 
on  the  theory  that  Capital  Stock  is  a  fixed  liability  and  as  such  should  be 
placed  opposite  fixed  assets.  An  objection  to  this  arrangement  is  that  it  di- 
vides the  net  worth  of  the  corporation  inasmuch  as  Capital  Stock  is  shown 
as  the  first  and  Surplus  as  the  last  item  on  the  liability  side.  Another 
objection  is  that  Capital  Stock  is  a  proprietorship  item  and  as  such  cannot 
be  a  fixed  liability  in  the  sense  that  obligations  to  outsiders  are  liabilities. 


FINANCIAL  STATEMENTS  AND  REPORTS 


39 


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40 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XIII. — Profit  and  Loss  Statement — Report  Form — Manufacturing. 
MODEL   MANUFACTURING   COMPANY 
Exhibit  B 
Profit  and  Loss  Statement  for  the  Year  Ending  December  31,  1922 


Net  Sales  of  Manufactured  Goods: 


Gross  Sales 

Less — Returns  and  Allowances 

Deduct — Cost  of  Manufactured 
Goods  Sold: 

On  Hand,  December  31.  1921  $46  700  00 

Cost  of  Goods  Manufactured  Dur- 
ing the  Year— See  Exhibit  C         171  170  55 


Deduct— On  Hand,  December  31,  1922 
Gross  Profit  on  Sales  of  Manufactured  Goods 


Deduct — Selling  and  General  Expenses: 


Selling  Expenses: 
Advertising 
Salaries  of  Salesmen 
Trav  eling  Expenses 
Delivery  Expenses 

General  Administrative  Expenses: 
General  Office  Salaries  and  Ex- 
penses 
Taxes  and  Insurance  on  Office 

Building 
Depreciation  of  Office  Building 

Net  Operating  Profit 

Add — Extraneous  Income  Items: 
Interest  on  Notes  Receivable 
Income  on  Securities  Owned 

Total  Income 


»5  000  00 

10  650  00 

6  780  30 

2  684  00 


$10  294  60 


300  00 
864  00 


Deduct — Extraneous  Expense  Items: 
Interest  on  Mortgage  Payable 
Interest  on  Notes  Payable 
Loss  on  Bad  Debts 
Legal  Expenses  Extinguished 

Net  Profit 


239  909 
4  260 


217  870 

44  800 


25  114 


11  458 


280 
180 


1  800 
289 

1  564 
900 


30 


60 


235  648 


173  070 


62  578 


36  572 


26  005 


460 


26  466 


4  553 


21  913 


60 


Form  XIII — Profit  and  Loss  Statement — Report  Form — Manufacturing — 

This  form  illustrates  a  type  of  operating  statement  used  for  a  manufacturing 
corporation.  Aside  from  a  slight  rearrangement  of  items  and  some  changes 
in  terminology,  this  statement  differs  very  little  in  form  from  those  already 
presented. 

The  details  of  the  cost  of  goods  manufactured  are  usually  shown  in  a 
separate  statement  known  as  Exhibit  C  and  are  so  indicated  in  this  form. 


FINANCIAL  STATEMENTS  AND  REPORTS 

Form  XIV. — Statement  of  Cost  of  Goods  Manufactured. 

MODEL   MANUFACTURING   COMPANY 


41 


Exhibit  C 


Statement  Showing  Cost  of  Goods  Manufactured 
For  the  Year  Ending  December  31,  1922 


Raw  Materials  Used: 


On  Hand,  December  31,  1921  J6  800  00 

Net  Purchases: 

Gross  Purchases         $95  600  00 

Less — Returns    and 

Allowances  1  720  00     93  880  00 

Freight  and  Hauling  Inward  1  620  00 

Deduct— On  Hand,  December  31,  1922 

Direct  Labor 


Manufacturing  Expenses: 


Superintendence 
Fuel  Used 

Salaries  of  Engineer  and  Firemen 
Taxes  and  Insurance  on  Factory  Buildings 
Depreciation  of  Factory  Buildings 
Taxes  and  Insurance  on  Machinery  and  Equip- 
ment 
Depreciation  of  Machinery  and  Equipment 
Repairs  to  Machinery  and  Equipment 
Factory  Office  Salaries  and  Expenses 
Total  Manufacturing  Charges 


Add — Goods  in  Process,  December  31,  1921 


Deduct — Goods  in  Process,  December  31,  1922 


Net  Cost  of  Goods  Manufactured 


102  300 

7  100 


5  940  30 
2  600  00 


3  680 

1  562 

2  289 

937 

2  500 
800 

3  580 


95  200 


54  620 


23 

890 

173 

710 

10 

360 

184 

070 

12 

900 

00 


00 


Form  XIV — Statement  of  Cost  of  Goods  Manufactured. — This  form 
contains  the  details  of  the  cost  of  goods  manufactured,  the  result  or  net  cost 
of  goods  manufactured  only  being  transferred  to  the  Cost  of  Goods  Sold 
section  of  the  Profit  and  Loss  statement. 

The  items  are  grouped  under  three  heads:  Raw  Materials  Used,  Direct 
Labor,  and  Manufacturing  Expenses,  the  total  representing  the  manu- 
facturing charge  for  the  period.  To  this  must  be  added  Goods  in  Process 
at  the  beginning  of  the  period,  and  from  the  total  deducted  Goods  in  Process 
at  the  close  of  the  period  to  find  net  cost  of  goods  manufactured.  An  alter- 
native arrangement  of  items  is  shown  in  Form  XVI. 


42  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XV. — Closing  Journal  Entries  for  a  Manufacturing  Company. 

MODEL   MANUFACTURING   COMPANY 

Closing  Entries,  December  31,  1922 


Purchase  Returns  and  Allowances 
To  Raw  Materials 

Returns  and  allowances  on  purchases  of 
raw  materials  for  the  year  ending  12/31/22 

Raw  Materials 

To  Freight  and  Hauling  Inward 

Freight  and  hauling  inward  on  purchases  of 
raw  materials  for  the  year  ending  12/31/22 

Manufacturing 
To  Raw  Materials 

Cost  of  raw  materials  used  in  manufactur- 
ing for  the  year  ending  12/31/22: 

On  hand,  12/31/21  »6  800  00 

Net  purchases  93  880  00 

Freight  and  hauling  inward  1  620  00 


Less— On  hand,  12/31/22 


$102  300  00 
7  100  00 


$95  200  00 


Manufacturing 
To  Direct  Labor 

Cost  of  direct  labor  for  the  year  ending 
12/31/22 

Manufacturing 

To  Superintendence 
Fuel  Used 

Salaries  of  Engineer  and  Firemen 
Taxes  and  Insurance  on  Factory  Buildings 
Depreciation  of  Factory  Building 
Taxes    and    Insurance   on    Machinery   and 

Equipment 
Depreciation  of  Machinery  and  Equipment 
Repairs  to  Machinery  and  Equipment 
Factory  Office  Salaries  and  Expenses 
Manufacturing  expenses  for  the  year  end- 
ing 12/31/22 

Finished  Goods 
To  Man\ifacturing 

Cost  of  goods  manufactured  for  the  year 
ending  12/31/22: 

Goods  in  process,  12/31/21        $10  360  00 
Raw  materials  used  95  200  00 

Direct  labor  54  620  00 

Manufacturing  expenses  23  890  55 


Less — Goods  in  process, 
12/31/22 


$184  070  55 
12  900  00 


$171   170  55 


Sales  of  Finished  Goods 

To  Sales  Returns  and  Allowances 

Sales  returns  and  allowances  for  the  year 
ending  12/31/22 


1  720 


1  620 


95  200 


54  620 


23  890 


171   170 


4  260 


00 


00 


00 


55 


55 


1  720 


1  620 


95  200 


54  620 


5  940 

2  600 

3  680 

1  562 

2  289 

937 

2  500 
800 

3  580 


171  170 


4  260 


00 


00 


00 


55 


40 


FINANCIAL  STATEMENTS  AND  REPORTS 
Closing  Entries,  December  31,  1922 — Concluded 


43 


Sales  of  Finished  Goods 
To  Finished  Goods 

Cost   of  finished  goods  sold 
for  the  year  ending  12/31/22: 
On  hand,  12/31/21 
Manufactured  during  the 
year 


$46  700  00 
171  170  55 


Less— On  hand.  12/31/22 


$217  870  55 
44  800  00 


$173  070  55 


Sales  of  Finished  Goods 
To  Profit  and  Loss 

Gross  profit  on  sales  of  fin- 
ished gooids  for  the  year  end- 
ing 12/31/22: 


Net  sales 

Less — Cost  of  sales 


$235  648  60 
173  070  55 


$62  578  05 


Interest  on  Notes  Receivable 
Income  on  Securities  Owned 
To  Profit  and  Loss 

Extraneous  income  items  for  the  year  end- 
ing 12/31/22 

Profit  and  Loss 
To  Advertising 

Salaries  of  Salesmen 
Traveling  Expenses 
Delivery  Expenses 
General  Office  Salaries  and  Exjjenses 
Taxes  and  Insurance  on  Office  Building 
Depreciation  of  Office  Building 
Selling  and  general  expenses  for  the  year 
ending  12/31/22 

Profit  and  Loss 

To  Interest  on  Mortgage  Payable 
Interest  on  Notes  Payable 
Loss  on  Bad  Debts 
Legal  Expenses  Extinguished 
Extraneous  expense  items  for  the  year  end- 
ing 12/31/22 

Profit  and  Loss 
To  Surplus 

Net  profit  for  the  year  ending  12/31/22: 
Gross  profit  on  sales  of  manu- 
factured goods  $62  578  05 
Extraneous  income  460  85 


$63  038  90 
Less — Selling  and 
general  ex- 
penses $36  572  90 
Extraneous  ex- 
expenses  4  553  00     41   125  90 

$21  913  00 


173  070 


55 


62  578 


280 
180 


36  572 


90 


4  553 


21  913 


00 


173  070 


55 


62  578 


05 


460 


5  000 
10  650 

6  780 
2  684 

10  294 
300 
864 


1  800 
289 

1  564 
900 


85 


21  913  00 


44 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Supporting  Schedules  for  Financial  Statements 

Form  XVI. — ^Analysis  of  Cost  of  Goods  Manufactured. 

THE  OAKS  MANUFACTURING  COMPANY 

Exhibit  B— Schedule  I 

Analysis  of  Cost  of  Goods  Manufactured  for  Year  Ending  June  30,  1922 

Goods  in  Process,  June  30,  1921  xxxx 

Raw  Materials  Used: 

Inventory,  June  30,  1921  xxxx 

Gross  Purchases  xxxx 

Less — Returns  xxx 

Net  Purchases  xxxx 

Freight  and  Hauling  In  xxx 

Total  Cost  of  Material  xxxx 

Deduct — Inventory,  June  30,  1922  xxxx     xxxx 

Direct  Labor  xxxx 


Manufacturing  Expenses: 
Factory  Superintendence 
Factory  Office  Salaries  and  Wages 
Purchase  Department  Expenses 
Power,  Heat,  and  Light 
Repairs  to  Factory  Building 
Depreciation  of  Factory  Building 
Depreciation  of  Machinery 
Taxes  on  Factory  Property 
Fire  and  Liability  Insurance 
Experimental  Department  Expense 
General  Factory  Office  Expense 


xxx 
xxx 
xxx 
xxx 
xxx 
xxx 
xxx 
xxx 
xxx 
xxx 
xxx     xxxx 


Total  Factory  Cost 

Deduct — Goods  in  Process,  June  30,  1922 
Sales  of  Waste  and  Scrap 


xxxx 
xxxx 
xxx  xxxx 


Net  Cost  of  Goods  Manufactured  (See  Exhibit  B) 


FINANCIAL  STATEMENTS  AND  REPORTS  45 

Form  XVI — Analysis  of  Cost  of  Goods  Manufactured. — This  form  illus- 
trates another  method  of  showing  factory  operations  where  the  classifica- 
tion of  factory  expenses  is  carried  out  in  considerable  detail  and  where  it  is 
desired  to  show  the  details  regarding  materials  used.  Instead  of  inserting 
such  details  in  the  profit  and  loss  statement,  a  separate  statement  is  set 
up,  the  result  of  which  is  inserted  in  that  statement.  This  statement  should 
contain  all  expenses  applicable  to  the  cost  of  making  the  product.  They  may 
be  summarized  under  four  heads:  Goods  in  Process,  Raw  Materials  Used, 
Direct  Labor,  and  Manufacturing  Expenses. 

The  order  of  arrangement  of  the  main  items  as  shown  in  Form  XVI 
is  a  logical  one,  starting  as  it  does  with  Goods  in  Process  at  the  beginning 
of  the  period  under  review.  An  alternate  arrangement  would  be  to  start 
with  Raw  Materials  Used  and  then  add  Direct  Labor  and  Manufacturing 
Expenses  to  find  the  factory  charge  for  the  period  (See  Form  XIV).  To 
this  item,  add  decrease  or  deduct  increase  in  value  of  Goods  in  Process  at 
close  of  period. 

Care  should  be  taken  that  no  element  of  administrative,  selling,  or  finan- 
cial expense  is  included  in  this  statement  or  that  any  manufacturing  element 
is  omitted. 


46  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XVII. — Analysis  of  Cost  of  Goods  Sold — Departmental. 

THE   CRALEY   FURNITURE   COMPANY 

Exhibit  B— Schedule  I 

Analysis  of  Cost  of  Goods  Sold  for  the  Month  Ending  December  31,  1922 


Departments 

Inventory 
Jan.  1,  1922 

Gross 
Purchases 

Returns  and 
Allowances 

Net 
Purchases 

Inventory 
Dec.  31,  1922 

Cost  of 
Goods  Sold 

Household  Furniture 
OflBce  Furniture 
Carpets  and  Rugs 
Stoves  and  Ranges 
Draperies 

$56  182  97 

38  201  60 

12  643  28 

10  201  64 

8  187  93 

$7  307  57 
7  508  18 

3  305  85 
5  558  57 

4  505  28 

$423  20 
125  00 
240  00 
350  00 
110  00 

$6  884  37 
7  383  18 

3  065  85 
5  208  57 

4  395  28 

$46  493  60 

39  668  75 

9  951  76 

11  896  32 

10  507  80 

$16  573  74 
5  916  03 
5  757  37 
3  513  89 
2  075  41 

Totals 

8125  417  42 

$28  185  45 

$1  248  20 

$26  937  25 

$118  518  23 

$33  836  44 

Note. — In  a  departmental  business  it  is  inconvenient  to  include  the  details  of  cost  of 
goods  sold  in  the  Profit  and  Loss  Statement,  consequently  a  separate  statement  known  as 
Exhibit  B — Schedule  I  is  set  up  as  shown  above.  In  this  statement  the  first  column  of  fig- 
ures, representing  the  inventory  on  hand  at  the  beginning  of  the  period,  added  to  the  fourth 
column.  Net  Purchases,  less  column  five.  Inventory  at  the  close  of  the  period,  will  give  the 
figures  in  the  sixth  column.  Cost  of  Goods  Sold.  After  all  items  have  been  extended  to  the 
Cost  of  Goods  Sold  column  the  vertical  columns  are  added  and  totals  are  proved  with  the 
footing  of  the  last  column  by  handling  totals  in  the  same  manner  as  details  were  handled: 
namely, footing  of  the  first  column  plus  the  footing  of  the  fourth  column  minus  the  footing  of 
the  fifth  column  must  equal  the  footing  of  the  last  column,  $33,836.44. 


FINANCIAL  STATEMENTS  AND  REPORTS  47 

Form  XVHI. — Analysis  of  Operating  Expenses. 

THE  cx)pij:y  manufacturing  company 


Rxhibit  B— Schedule  II 

Analysis  of  Oi>erating  Expenses  for  the  Month  of  January,  1922 

Selling  Expenses: 

Rent  of  Offices 

$     800  00 

Rent  of  Warehouse 

175  00 

Salaries  and  Wages 

2  460  00 

TraTeling  Expenses 

750  00 

Advertising 

1  800  00 

Stationery  and  Postage 

52  50 

Office  Supplies 

34  20 

Tdephone  and  Telegrams 

22  00 

Depreciation  of  Office  Equipment 

9  50 

Depreciation  of  Store  Fixtures 

142  70 

Taxes  on  Stock  in  Store 

175  00 

Insurance  on  Stock 

95  00 

Total 

$6  515  90 

Shipping  and  Deliver>-  Expenses: 

Office  Salaries  and  Wages 

$     650  00 

Salaries  of  Chauffeurs 

210  00 

•fires 

450  00 

Storage 

110  00 

Insurance  on  Trucks 

8  00 

Depreciation  of  Trucks 

150  00 

Repairs  to  Trucks 

82  00 

Gasoline  and  Oil 

72  20 

Stationery  and  Postage 

42  60 

Supplies 

12  50 

Depreciation  of  Office  Equipment 

2  50 

Sundry  Garage  Supplies 

12  40 

Total 

1  802  20 

General  Administrative  Expenses: 

Rent  of  Offices 

S     250  00 

Office  Salaries 

1  250  00 

Office  Salaries  and  Wages 

428  50 

Directors'  Fees 

20  00 

Stationery  and  Postage 

148  25 

Office  Supplies 

30  00 

Tdephone  and  Telegrams 

12  50 

D^reeiation  of  Office  Equipment 

26  50 

Gcnporate  Franchise  Tax 

75  90 

Miscdlaneous  Office  Expense 

32  00 

Total 

2  273  65 

Total  Operating  Expenses  (See  Exhibit  B) 

$10  591  75 

48  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XVIII — Analysis  of  Operating  Expenses. — This  form  illustrates 
the  method  of  exhibiting  an  analysis  of  operating  expenses  where  a  con- 
densed form  of  profit  and  loss  statement  is  used.  It  furnishes  very  valuable 
information  to  the  management  for  administrative  purposes. 


FINANCIAL  STATEMENTS  AND  REPORTS  49 

Form  XIX. — Analysis  of  Surplus. 
ANALYSIS  OF  SURPLUS  ACCOUNT,  DECEMBER  31,  1919 

Balance,  January  1,  1919  $35  119  987  38 

Less — Reserve  for  Amortization  of  War  Facilities  1  225  063  73 

$33  894  923  65 
Add— Net  Profit  for  the  year  ended  December  31,  1919  17  304  813  33 
Premium  Received  on  sale  of  150,000  shares  of  addi- 
tional Preferred  Stock  issued  387  OOP  00 
Total  $51  586  736  98 

Deduct — 7%    I)ividend    on    Preferred 
Stock    (#'s  28  to  31  inclusive)  for 
the  year  ended  December  31,  1919       2  247  000  00 
4%  Dividend  on  Common  Stock  ) 
#'s  16  to  19  inch)  paid  during  1919       2  400  000  00 

Reduction    of    Preferred    Stock    pur- 
chased from  cost  to  par  77  778  46 

Additional  Appropriation  for  Pension 

Fund  100  000  00 

Income  and  War  Excess  Profits  Taxes 
paid  during  the  year,  applicable  to 

1918  earnings  5  558  912  47     10  383  690  93 

Net  Balance  of  Surplus.  December  31,  1910  $41  203  046  05 


Form  XIX — Analysis  of  Surplus. — This  form  illustrates  a  method  of 
analyzing  and  reconciling  the  Surplus  account  when  it  is  not  desired  to  show 
details,  either  as  an  addition  to  the  Profit  and  Loss  statement  or  in  the  Capital 
section  of  the  Balance  Sheet.  The  object  is  to  account  in  detail  for  the  dif- 
ference between  the  balance  of  Surplus  at  the  beginning  of  the  period  and 
the  balance  at  the  close  of  the  period  after  closing. 


50 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


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FINANCIAL  STATEMENTS  AND  REPORTS 


51 


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29  05 
3  23 

31  86 

32  41 

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52  ACCOL'STISG  PROBLEMS:  ISTERMEDIATE 

Special  Forms  of  Financial  Statements 

Fo&M  XXL — Condeaised  Itm^mmte  Sheet. 

AMERICAN  lyTEEXATIOyAL  OORPORATIOy 

General  Balaace  Sheet.  Deeember  31,  1&— 

Inrestiuerrtft— Bonds,  Stoek,  etc  f27  847  506  17 

Beal  Estate  2  040  255  44 

Current  AsBete: 


Carii  SI  53S  S88  73 

CidlLaaii£  100  000  00 

iBTcntocies  of  Mcrefaandiee  7  474  399  78 

AeeottntB  Beeeivabie  3  3M  493  26 

Interest  Aecrued  Beeearablc  128  811  74 

S12  636  d93  51 
LesB — ^^-aneb  Offiee  and  Iiiter<Com- 

pacy  Cash  in  Ttanatt  219  654  34     12  416  939  17 

Giber  .Aj»»^  1  557  OOP  57 

Total  $43  861   703  35 

Lia-bJitieg  and  Capital 

Ca pital  r»t/xk: 

Pr'^errefj  .SUK-k — 10,000  shares  (lesB 
•VXj  fcharc'5  held  in  Treasury)  60% 
paid  S       570  000  00 

ComiTjon  riVx-k — 490,000  shares,  60% 

paid  29  4W  000  00  $29  970  000  00 

Nov^-  and  A^-^ounts  Payable  6  364  390  47 

Jlr.i^r^ ,',  1  783  902  63 

•"jrpig^  5  743  410  25 

J'Aa!  $43  861  703  35 

.'•'r.' fi/^— 7  i>'^'i  H<;r<t  O^tiuceut  Linbilitat*  iLggrtyaiat  $ilOjOilM  on  aeeoast  of  TwhilttOT 


FIXAXCIAL  STATEMENTS  AXD  REPORTS  53 

Fo&M  XXII- — Coodeosed  Income  Acconnt. 
AMERICAN  IXTERXATIpyAL  OORPQRATIOy 

Sqmmary  of  Consolidated  Income  and  Profit  A:  Loss  for  the  Year  ended 

December  31,  19 — 

Income  from  Interest  and  Dividends  $2  45S  319  37 

Gross  Earnings  from  Uperatioia  5  3SS  227  97     $7  S46  547  34 

Deduct: 

Interest  S     260  403  40 

Domestic  and  Fcffeign  Taxes  876  309  53 

Other  Expenses  2  993  455  IS 

Net  Earnings 

Surplus  at  beginning  of  year 

Surplus  Balances  of  Companies  Acquired  during  tlie  year 

Gross  Surplus  $7  662  661  57 

Profit  and  Loss  Cbaiges: 

Dividends  $1  S17  325  00 

Miscellaneous  Charges  and  Adjustm^its 

(Net)  101  936  32       1  919  251  32 

Sulcus  at  «id  of  year  >5  743  410  25 

*A1  tlw  atoek  of  Cuter,  >f»cy  A  Con^waiy,  Jne.,  and  tfae  Rasa  A  TvpeUizie  Export 
Oonpuv  b»vn«  been  awiiared  fay  the  Aaaeneaa  1—ef >lifil  CoipacMaaa,  tke  aaiplai 


4 

130 

168 

11 

$3  716 

3  507 

•43S 

379  -23 

513  34 
769  00 

54 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXIII.— Com 
THE   BOSTON    DRY 

Comparative  Balance  Sh 


Assets 


Dec.  31, 1921 

Dec.  31, 1920 

Increase 

Decrease 

124  000 
236  750 
25  291 
30  169 
3  682 

00 
00 
60 
50 

72 

124  000 
190  400 
20  300 
34  287 
2  983 

00 
00 
00 
95 
40 

46  350 
4  991 

699 

00 
60 

32 

4  118 

45 

419  893 

82 

371  971 

35 

47  922 

47 

250  000 

00 

250  000 

00 

44  968 

36  738 
15  640 

73 

20 
56 

36  941 

25  789 
12  987 

30 

60 
32 

8  027 

10  948 
2  653 

43 

60 
24 

97  347 

49 

75  718 

22 

21  629 

27 

12  362 
62  550 

50 
50 

44  321 

61  780 

97 
00 

770 

50 

31  959 

47 

74  913 

00 

106  101 

97 

31  188 

97 

15  813 

247  932 

4  176 

98 

196  211 

617 

802 

46 
16 
30 

70 
88 
29 

37 

12  463 

228  113 

5  207 

126 

162  486 

132 

484 

19 
43 

85 

32 
85 
65 

21 

3  350 

19  818 

33  725 
484 

318 

27 
73 

03 
64 

16 

1  031 

27 

55 

62 

465  652 

16 

409  014 

50 

56  637 

66 

1  846 
217 

50 
30 

1  524 
541 

90 
65 

321 

60 

324 

35 

2  063 

80 

2  066 

55 

2 

75 

17  640 
14  000 

00 
00 

18  900 
17  500 

00 
00 

1  260 
3  500 

00 
00 

31  640 

00 

36  400 

00 

4  760 

» 

1  341  510 

27 

1  251  272 

59 

90  237 

68 

J 

Real  Estate  and  Equipment: 
Land 
Buildings 

Trucks,  Wagons  and  Horses 
Furniture  and  Fixtures 
Garage  and  Stable  Equipment 

Total  Real  Estate  and  Equip- 
ment 

Goodwill 


Sinking  and  Reserve  Funds: 
With  Trustees  for  Redemption  of 

Twenty  Year  6%  Gold  Bonds 
Fund  for  Redemption  of  Ten  Year 

4J%  Debentures 
Insurance  Fund 

Total   Sinking  and   Reserve 
Funds 

Investments: 


Securities  Owned 
Vacant  Land — Cost  plus  Accrued 
Taxes 

Total  Investments 

Current  Assets: 


Cash 

Accounts  Receivable 

Notes  Receivable 

Accrued  Interest  on  Notes  Re- 
ceivable 

Merchandise  on  Hand 

Office  Supplies  on  Hand 

Garage  and  Stable  Supplies  on 
Hand 

Total  Current  Assets 

Prepaid  Assets: 


Taxes 
Insurance 

Total  Prepaid  Assets 

Deferred  Charges  to  Operations: 


Bond  Discount  and  Expenses 
Organization  Expenses 

Total    Deferred   Charges   to 
Operations 

Total  Assets 


FINANCIAL  STATEMENTS  AND  REPORTS 


55 


parative  Balance  Sheet. 
GOODS   COMPANY 
eet,  December  31,  1921 


Capital,  Liabilities  and  Surplus 


Dec.  31, 1921 


Dec.  31,  1920 


Increase 


Decrease 


Capital  Stock: 


Preferred — Authorized,  2500 

Shares  par  value  $100 
Common — Authorized,  5000 

Shares  par  value  $100 

Total  Capital  Stock 
Funded  Debt: 


Twenty  Year  6%  Sinking  Fund 
Gold  Bonds,   Due  January   1, 
1930: 
In  Hands  of  Public 
Held  by  Sinking  Fund  Trus- 
tees 
Ten  Year  4J%  Debentures,  Due 
July  1,  1926 

Total  Funded  Debt 

Current  Liabilities: 


Accounts  Payable 
Notes  Payable 
Accrued  Interest  on  Bonds 
Accrued  Interest  on  Notes  Pay- 
able 
Accrued  Salaries  and  Wages 
Dividends  on  Preferred  Stock 
Dividends  on  Common  Stock 
Unclaimed  Dividends  and  Interest 


Total  Current  Liabilities 


Reserves: 


For  Depreciation  of  Buildings  and 

Equipment 
For  Loss  on  Bad  Accounts 
For  Sinking  Fund  for  Redemption 

of  Twenty  Year  6%  Gold  Bonds 
For  Redemption  of  Ten  Y^ear  4J% 

Debentures 
For  Insurance 

Total  Reserves 

Capital  Surplus — Proceeds  of  Sale  of 

Treasury  Stock 

Undivided  Profits 


Total  Capital,  Liabilities  and  Surplus 


150  000 
450  000 


175  000 
25  000 
100  000 


300  000 


62  731 
25  700 
5  250 

296 

982 

3  000 

7  875 

281 


106  117 


45  260 
8  239 


44  968 


43  738 
19  621 


161  827 


130  000 


43  565 


1  341  510 


150  000 
400  000 


185  000 
15  000 
100  000 


300  000 


53  906 

37  689 

5  250 


604 
3  000 
7  000 

231 


36  410 
5  749 


36  941 


32  689 
15  129 


126  919 


30 


36  201 


27 


50  000 


00 


00 


378 


875 
50 


8  850 
2  490 


8  027 


11  048 
4  491 


90 


7  363 


10  000 


00 


03 


11  989 ' 


172  ( 


40 


56 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


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FINANCIAL  STATEMENTS  AND  REPORTS 


57 


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58  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XXV.— Consol 
AMERICAN  HIDE  AND  LEATHER  COM 

Balance  Sheet  as 

Assets 

Cost  of  Properties: 

Including  4517  Shares  Preferred  and  2259  Shares  Com- 
mon Stock  of  American  Hide  &  Leather  Co.  held  in 
trust  $26  838  470  80 

Sinking  Fund  Assets: 

Cash  and  Accrued  Interest  98  407  01 

($4,891,000  par  value  of  Bonds  in  Sinking  Fund  held  by 

Trustees  not  treated  as  an  asset — and  deducted  from 

Bonds  issued  per  contra 

Current  Assets: 

Hides,  Skins,  and  Leather  on  hand  and 
in  process  of  manufacture  and  Gen- 
eral Supplies  $12  589  481  22 
Less — Reserve  for  possible  depreciation  -  ■ 
in  values                                                            700  000  00 

$11  889  481  22 
Sundry  Debtors  for 

Bills    and   Accounts 

Receivable  $4  113  343  61 

Less — Reserve  for 

Doubtful  Debts  and 

Discount  259  136  16       3  854  207  45 

Claims  and  Sundries  15  416  61 

Insurance    Premiums    imexpired    and 

prepaid  interest  143  431  98 

laberty  Loan  Bonds  at  par  800  550  00 

Cash: 

In  Banks  and  on  hand  1  077  946  00     17  781  033  26 


Total  Assets  $44  717  911  07 


FINANCIAL  STATEMENTS  AND  REPORTS  59 

idated  Balance  Sheet. 

PANY  AND  SUBSIDIARY  COMPANIES 

at  June  30,  1918 

Liabilities 

Capital  Stock: 

Authorized: 

175,000  7%    Cumulative    Preferred 

Shares  of  $100  each  $17  500  000  00 

175,000  Common  Shares  of  $100  each     17  500  OOP  00 

Issued : 

130,000  Preferred  Shares  $13  000  000  00 

(Dividends    accumulated    thereon 
since  1899  except   as    to    15^% 
paid  to  date) 
115,000  Common  Shares  11  500  000  00  $24  500  000  00 

First  Mortage  6%  Bonds: 
Authorized  $10  000  000  00 

Issued  $  9  000  000  00 

Less— In  Treasury  $     475  000  00 

In  Sinking  Fund  4  891  000  00 

Held  by  Trustee  as 
invested  proceeds 
of  released  prop- 
erty sold  478  000  00       5  844  OOP  00       3  156  000  00 

Current  Liabilities: 

Bonds  Interest  Accrued  $     170  500  00 

Bills  Pavable  2  200  000  00 

Trade  Accounts  605  715  10 

Wages  Accrued  53  120  35 
Taxes   and   Estimated  Excess   Profits 

Tax  504  123  80      3  623  459  25 

Sinking  Fund  for  Redemption  of  First 
Mortgage  Bonds: 

Appropriations  and  Accretions  to  June 

30,  1917  $4  539  282  13 

Appropriations  for  year  ended  June  30, 

1918,  charged  to  Profit  and  Loss  150  OOP  PP 

Interest  accretions  dur- 
ing year  $     28P  63P  PO 

Less — Difference  be- 
tween cost  and  par 
of  Bonds  purchased 
out  of  interest  Ac- 
cretions and  in  anti- 
cipation of  Sinking 
Fund  and  other  re- 
quirements   846  37  279  783  63       4  969  P65  76 

Surplus:  8  469  386  P6 

Total  Liabilities,  Capital  and  Surplus  $44  717  911  07 


60 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


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FINANCIAL  STATEMENTS  AND  REPORTS 


61 


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62 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXVII.— English 

WALKER  &  HOM 

Balance  Sheet,  S 


Capital  and  Liabilities 


Nominal  Capital: 
600,412  six  per  cent.  Cumulative  Preference  Shares  of  £1  each 
220,000  Ordinary  Shares  of  £1  each 

Issued: 
581,397  Preference  Shares  of  £1  each,  fully  paid 
203,430  Ordinary  Shares  of  £1  each 

Less — Calls  in  arrear 
Four-and-a-Half  per  cent.  First  Mortgage  Debenture  Stock 
Interest  to  date 
Less — Tax 
1,400  Four  per  cent.  Debentures  of  £100  each  (Showell's) 
Interest  to  date 
Less — Tax 
Four  per  cent.  Mortgage  Debenture  Stock  (Watson,  Woodhead  & 
Wagstaffe's) : 
Authorised  Issue.  £250,000 — Issued 
Interest  to  date 
Less — Tax 
( £21,000  of  this  issue  is  deposited  as  security  for  Loan.) 
Mortgages  on  Properties  and  Interest  to  date  secured  by  Deposit 
of  Deeds  or  charge  upon  Properties,  and  also  a  charge  upon  the 
Properties  in  the  Trust  Deeds  securing  the  Company's  De- 
benture Stock 
Loans,  Deposits,  etc. 
Sundry  Creditors: 
Trade  Accounts,  etc. 
Rent,  Rates  and  Taxes  apportioned 
Unpaid  Dividends,  etc. 
Capital  Reserve  Account 
Suspense  Account  for  Oatetanding  Adjustments  (re  Showell's  pur- 


£ 

600,412 

220,000 

£820,412 

B. 

0 
0 
0 

d. 

0 
0 
0 

£ 

760, 163 

8.   d. 

581,397 
209,430 

0 
0 

0 
0 

790,827 
30,664 

0 
0 

0 
0 

0   0 

200,000 

1.726 
140,000 

0 

11 

0 

0 

5 
0 

1,237      1     10 


Suspense  Account  for  Outstanding  Adjustments  (re  Watson,  Wood- 
head  &  Wagstaffe's  purchase) 
General  Reserve  Fund 
Profit  and  Loss  Account 
On  behalf  of  the  Board 


206, 740 

0 

0 

3,261 

11 

7 

552,965 

4 

10 

224,616 
33,650 

6 

7 

0 

2 

80,856 
27,039 

13 
17 

8 
6 

107,896 
3,669 
5,553 

11 

1 

15 

2 

11 
0 

124 

6 

6 

3,424 
50,000 
110,108 

7 
0 
18 

3 
0 
0 

J.  H.  DaVIES,        1    r.-,«^o,. 

C.B.Morgan,   ]  Directors. 
H.  Spary,  Secretary. 


£1,852,171     17    10 


Auditors' 

To  the  Shareholders  of  Walker  &  Homfrays,  Limited, 

in  accordance  with  the  provisions  of  the  Companies  (Consolidation)  Act,  1908,  we  report  to  the  Share 
la.st,  with  the  books  and  vouchers  relating  thereto,  and  have  audited  the  above  Balance  Sheet. 

During  the  course  of  the  audit  we  have  obtained  all  the  information  and  explanations  we  have  required, 
a  true  and  correct  view  of  the  state  of  the  Company's  affairs,  according  to  the  best  of  our  information  and 
Manchester,  February  18,  1918. 


FINANCIAL  STATEMENTS  AND  REPORTS 


63 


Form  of  Balance  Sheet 
FRAYS,   LIMITED 
eptember  30,  1917 


Property  and  Assets 


Woodside  Brewery  with  Freehold,  Copyhold,  and  Long  Leasehold 
Fully-Licensed  Public  Houses,  Beerhouses  and  other  Proper- 
ties, as  on  June  30,  1916 

Additions  during  the  fifteen  months 

Less — Compensation  received,  proceeds  of  sale  of  properties  and 
losses  thereon 

Ingoings,  Fixtures,  etc. 
Properties  held  on  Short  Leases  and  on  Yearly  Tenancies 
Less — Depreciation  for  the  fifteen  months 

Fixed  Plant: 
As  on  June  30,  1916 
Less — Depreciation,  Five  per  cent,  per  annum 

Additions 
Less — Sales  during  the  fifteen  months 

Rolling  Stock 
As  on  June  30,  1916 
Less — Depreciation,  Twelve-and-a-half  per  cent,  per  anniun 

Additions 
Less — Sales  during  the  fifteen  months 

BottUng  Plant: 
As  on  June  30,  1916 
Less — Depreciation,  Twenty-five  per  cent,  per  annum 

Additions 
Less — Sales  during  the  fifteen  months 

•  Office  Furniture,  etc.: 
As  on  June  30,  1916 
Less — Depreciation,  Seven-and-a-half  per  cent,  per  annum 

Additions  during  the  fifteen  months 
Stock-in-Trade,    comprising   Beer,   Malt,   Hops,   Wines,   Spirits, 

Cigars,  etc. 
Sundry  Debtors: 
Trade  Accounts 

Less — Discount  and  reserve  for  Bad  Debts 
Rent  Accounts 
Loans 

Rates,  Taxes,  Licences,  etc.,  prepaid 
Manchester  Brewery  Co.,  Ltd.,  Trade  Account 
Dividends  Receivable  from  Manchester  Brewery  Co.,  Ltd.  (since 

paid) 
Investment  Account: 
Sundry  investments,  including  thirty  of  the  Company's  4  per 

cent  Debentures  of  £100  each,  at  cost  price 
Shares  in  Manchester  Brewery  Co.,  Ltd.,  at  cost  price 
Trustees  for  Debenture  Stockholders: 

Cash  at  Bank 
Cash  at  Bank  and  in  Hand 


1,258,474 
5,554 

18 
12 

3 

7 

11,411 

0 

0 

1,252,618 
49.269 

10 
2 

10 

7 

6.906 

1 

2 

12,140 
758 

0 
15 

1 

1 

11,381 
349 

5 
13 

0 

6 

5,347 
835 

9 
10 

10 
11 

4,511 
1,050 

18 
2 

11 
11 

7.570 
2.365 

14 
16 

0 
10 

5,204 
2.7i9 

17 
20 

2 
7 

1.995 
187 

4 
1 

0 
0 

1.808 
168 

3 
4 

0 
5 

18.486  15  1 

5.383  0  7 

3.321  19  2 

9,380  9  2 


3,347    10 
366,205      7 


1,301,887    13      5 


11,730    18      6 


7,924 


1.976 
24.065      7 


7      5 


36.572 
1.627 


7.834      1 
55.377      5 


28.061      4    11 


369.552    18      1 


£1,852.171     17     10 


Report 

holders  that  we  have  examined  the  accounts  of  the  Company  for  the  fifteen  months  ended  September  30 

and  in  our  opinion  the  Balance  Sheet  of  Sept.  30,  1917,  as  set  out  above,  is  properly  drawn  up  so  as  to  exhibit 
the  explanations  given  to  us,  and  as  shewn  by  the  books  of  the  Company. 

W.  Bolton  k  Co.,  Chartered  Accountanti. 


64 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXVIII. — American  Bankers  Association — Form  for  Credit  Purposes 
— Firm  or  Individual — Manufacturer  or  Merchant. 


rom.  riKM  OR  INDIVIDUAL— MsnafMtvrw  ar  H*rch«sl. 

SUtcment  of .  .    ^ 

BuaincH — . — ..,,.- ,—..-.. 


TO. 


For  the  purpose  of  procuring  utd  nttintaining  credit  from  time  to  time  in  any  form  whatsoever  with  the  above  named  Bank*  (or 

claims  and  demand*  agftinst  the  undersigned,  the  undersignedl  submits  the  following  as  being  a  true  and  accurate  statement  of. 

financial  condition  on  the  following  date,  and  agree tiiat  if  any  change  occurs  that  materially  reduces  the  means  or  ability  of  the  undersigned 

to  pay  all  claims  or  demands  against .the  undenigncd  will  immediately  and  without  delay  notify  the  Bank;  and  unleia 

the  Bank  is  so  notified,  it  may  continue  to  rely  upoa  the  statement  herein  as  a  true  and  accurate  statement  of  the  finanrial  condition  oi  the  under* 
vgned. 

ConditioD  ahown  by — bookg  uid  inventory  of ~ — Ift 


ASSETS. 

LIABIUTIES. 

Due                        Mintx. 

Accounts  of  customen  (good). 
Notes  and  acceptances  of  custom 
Merchandise  (at  coat) ; 

<1)    Manufactured,    -    -    - 
<2)     Raw  material.    -    -    - 
(3)    Stock  in  procesa,     •    - 

BIS  (good),    -    - 

Acceptances: 

(1)  Issued  in  payment  for  merchandise,    -    - 

(2)  Other  acceptances,      ------- 

Not»  payable  for  merchandise,     ------ 

Notes  payable  to  own  banks.    -----.- 

Notes  sold  through  brokers,    ....... 

Notes  payable  to  others, 

Money  on  deposit  with  us,      .-.--.. 
Other  current  debts  (itemized)  , 

_      ,       ,  . 

Due    from    partners'    notes,   accounts   receivable, 

etc., 

, 

nam    am  mm       fi^j, 

Furniture  and  fixtures,    -------.. 

Real  esuu  (value:  mortgage  entered  in  liabilities). 
Other  atscu  (iUmized) 

Total  current  liabilities,     .--..«. 
Debt  secured  by  mortgage— when  due 

ffotes  receivable  and  acceptances  discovnted  or  told 
with  endorsement  or  tmrantee  (contintent  lia- 
biUty),     

■  III! 

1 

Between  the  date  of  the  above  inventory  and  the  present  time  we  liavc  had  i 


losses  through  bad  debts  or  otherwise  (except^ 


and  our  condition  today  is  fully  as  good  as  set  forth  by  the  above  figures. 


Condensed  Profit  and  Loss  Statement  for  Fiscal  Year  Ending... 


EXPENSE 

! 

INCOME. 

Cost     f  material  or  merchandise  consumed 

■ 

Actual  expense  of  conducting  business.    Including 

rent,  taxes,  insurance,  etc., 

Salary  drawn   by    myself    (ourselves),        -     -     - 

From  discounts  on  purchases,     .----- 
From  other  sources   (itemize), 

_ 

— 



RECONCILEMENT  OF  NET  WORTH 


Net  worth  at  close  of  previous  fiscal  year, 
Leas  charges  not  applicable  to  current  year, 
Add  net  profits  as  above,    --.-.-- 
Less— Withdrawals,  other  than  salary  as  above. 
IVt  worUi. 


(Sec  Rcvcne  Side.) 


FINANCIAL  STATEMENTS  AND  REPORTS 


65 


CCM'niNGE>fT  LIABILITY.— We  have  no  contingent  liability  of  any  kind  u  endoner  or  guanntor  not  noted  above  (except  aa  foUom): 


Our  merchandise  is  insured  for  $ — 
:  carried  for  $. — 


Plant,  building  and  machinery,  $... 
Beneficiary,..- _ -, 


None  of  the  accounts  or  notes  receivable  induded  in  the  within  statement  have  been  assigned,  pledged  or  discounted  (except  u  foQowa) : 


No  other  contingent  liability  (except) - _ _ - - - 

Neither  have  any  of  our  other  assets  been  pledged  or  assigned  as  collateral  (or  any  of  our  liabilities  (except  as  follows) : 


Assets  on  which  mortgages  are  a  lien — — 

Our  partnership  terminates. - - - — 

We  have  no  interest  in  any  other  concern  except  (name  affiliations  and  location) 


There  are  no  suits  pending  against  our  firm  (except).., 


The  form  of  obligation  used  in  the  financing  of  our  business  is  the  plain  note  of  the  firm  (endorsed  by).„ 
None  o(  the  endorsers  guarantee  or  endorse  the  paper  of  other  concerns  or  individuals  (except) 


^      j  commercial  paper  is    j        j^^    j,^       j^   ^^^^^  ^^^^^^  ^^  brokers)... 
\       acceptances  are        \     *^ 


Ou'  books  j  ^^^  "°*  (  audited  by  a  certified  public  accountant 

The  date  of  last  audit  was..- - - Jnade  by  . 


BANK  ACCOUNTS 


LINES  GRANTED 


Under  Discount  on  Sutement  Date 


GENERAL   PARTNERS; 


...Personal  worth  outside  of  this  business,  $... 
-.Personal  worth  outside  of  this  bu&tness.  %.... 
...Personal  worth  outside  of  this  business,  %.... 


(Please  sign  firm's  name  here)... 


66 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXIX. — American  Bankers  Association — Form  for  Credit  Purposes 

— Corporation. 


Of  >N  Kl  UENTIAf » 


OOBFOBAIIOBr 


Oorpont*  Mame  . 

Main  OStoe 

Branches  


ASSETS 

1 

LiIABIUTIBS 

1 

Acrrptanccn  IcRiind 

1 

Note*  Payable  to  nanhi 

""i 

Notes  Payable  to  Officers 

.  J 

Mercluuidlje: 

Accounts  Payable  to  OSlcero 

Riv  Material 1 

Deposits  of  Money  wiUi  tM3  Co. 

t 

Collateml  Fledgod  to  Loana: 

Secured  LUblliUes  by 

A/.^Mnt.  P«*Hvi,hI«                                         ' 

AcftOimtJi  RftftAlvahlA ... 

; 

' 

Trade  Acceptances.-.—-..          

X.     r.,>h.nrfl««»                                                                       1 

1 

Merchandise        .      .. 

i 

ReeurlUftii  . 

1 

Any  Other  Current  LlaMlltlee 

1  ■  ■  "" 

f 

1 

T~ 

i| 

Total  Carrent  UablUUM 

r  1 

! 

I>no  from  Controlled  or  Allied 

Mortgages  or  Liens  on 

Real  Estate          - 

Rnn.1«.t  IViht 

For  AdrancM — — 

Stocks,  Bonds  and  InvoAtznents  ^...-». 

■"""■ 





— 

~ 

t  ^nr' 

1 

BafUlme*    I 

■■■■    ' ■ ~ 

— -j — 





>iot«.i  Kccalrabl^— Duo  from  Offlcen, 

Accounu  B«<celT&ble— Due  from  Off- 

T 

„ 



H-.. 







|. 

" 

TOl 

TOTAL 

j 

1 

FINANCIAL  STATEMENTS  AND  REPORTS 


67 


Contlniient  Liability  of  Any  Kind 


Upon  It^c«lvablea  Z>lscouiit«d  or  Plmlgod ._„ 

Vpon  AcconunodAtloo  Paper  or  EndorsemeDts „ 

Oostomera'  Aocomita  Sold  and  Assigned ~.^— . 

A*  Goarmntoe  for  Others  on  Not«a.  Contracto,  etc  . 

F^r  Bonds  or  Unflnlshed  Contmcta 

For  Leue« 

Other  Contingent  lilabllltlea 


Commitment  Liability 

Contract  Prlco  of  Goods  Purchased,  Delivery  to  be  made  During  193       . 

Present  Martlet  Value  of  Goods  Ptirchased,  DeUrery  to  be  made  Daring  193 


Insorance.   Fire,  on  Buildings  $„ 
Uercbandlae  % —...—— 


-.Machinery,  Flxtnres  and  Eanlpment  t- 
-Life  In  faTor  of  Company  % 


CONDENSED   PROFIT  AND   LOSS  STATEMENT  FOR  FISCAL  YEAR  ENDING: 

192 

KXPEKSB 

BrooMB 

Oo^of  Material  or 

Actual  Expeiue  of  Condnctlng 
Boilness.  locludlng  Rent, 

From  Dlnmnnt  |n  I>ntrtia,« _ 

n  A  n.1,..  r-h  ,„~i  n<T 

. 

^ 

•n,^! 

Snrplos 

and 

Undl 

lidec 

Pr 

atUa 

.9 

.9 

9—. 

Ixa  DlTldeods  (Preferred  (Per  Cent)      - 

.»...    . 

V 

(No  Par  (Per  Cent)   

$ 

».    ... 

CndjTMed  ProflU 

......... 

»....- 

— 

We  hereby  ecrUfy  that  the  foregoing  figures  are  taken  from  the  books  of  this  Company  and  that  they  and  the  sut#> 
meets  contained  on  both  sides  of  this  sheet  are  true  and  give  a  correct  ebovlDg  of  the  financial  condition  of  the  Companr* 


<SUte  ofUdal  tlUe) 

2 — Wo  have  audited  the  acconnta  of. , for  the  period  from.—- . 

to and  certify  that  in  my    oar  opinion  the  above  Balance  Sheet  and  Statement  of  Profit 

and  Xxws  set  forth  the  financial  conditions  of  the  firm  or  company  at ^nd  tfao  results 

of  its  operations  for  the  period. 


Public  Accountants. 
WOHTH  OF  E>nX)RSER3  EXCLUSTVE  OF  THKIR  INTEHESTS  IN  THE  BUSINESS 

..$ ^_ 


68 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXX. — Statement  of  Cash  Receipts  and  Disbursements. 
ARLINGTON   RESEARCH   CLUB 


Statement  of  Cash  Receipts  and  Disbursements 

For  the  Year  Ending  May  31,  1921 

Receipts 

Cash  on  Hand,  June  1,  1920 
Membership  Dues 
Entrance  Fees 

$1  490 
14 

00 
00 

$     356  48 

Receipts  of  Classes  Conducted: 

Physical  Culture 
Literature 
History  and  Travel 

$129  50 
73  00 
20  00 

222 

50 

Receipts  from  Entertainments: 

Annual  Guest  Night 

May  Breakfast  at  Vendome 

Lecture  for  District  Nurse  Fund 

$107  00 
139  00 
107  10 

353 

10 

Contribution  to  Endowment  Fund 

Rent  of  Piano 

Rent  of  Stereopticon 

Sale  of  Federation  Bulletin  and  Year  Books 

Interest  on  Bank  Balance 

101 

123 

42 

1 

9 

50 
00 
00 
50 
42 

Total  Receipts  for  Year 

2  357  02 
$2  713  50 

Disbursements 

Rent  of  Club  Rooms  (Including  Janitor  Service) 

$  249 

00 

Expenses  of  Classes  Conducted: 

Physical  Culture 
Literature 
History  and  Travel 

$100  50 
128  00 
20  00 

248  50 

Expenses  of  Entertainments: 

Lectures 

Teas 

Annual  Guest  Night 

Children's  Day 

Lecture  for  District  Nurse  Fund 

May  Breakfast  at  Vendome 

$295  50 

192  78 

228  45 

45  41 

17  10 

148  57 

927 

81 

Administration: 

State  and  General  Federation  Fees 

Expenses    of    Delegate    to    the    Annual    Convention    of 
Women's  Clubs 

Printing  and  Postage 

Telephone 

Repairs : 

Piano                                                                          $59  00 
Box  Scenes                                                                  24  00 
Lantern                                                                          2  10 

$  39 

12 
153 

18 

85 

35 

40 
42 
80 

10 

309 

07 

Paid  into  Endowment  Fund 
Refund  of  Dues 
Federation  Bulletins 

125  00 

15  00 

2  00 

Aids  and  Benevolences: 

Massachusetts  Forestry  Association 
Massachusetts  Civic  League 
Society  for  Moral  Education 
Charity 

$     5  00 

5  00 

2  00 

100  00 

112 

00 

Total  Disbursements  for  Year 

1  988  38 

Cash  on  Hand,  May  31,  1921 

jned) 

Theodore 

A.  ] 

3 

$     725  12 

Respectfully  submitted, 
(Si« 
May  31,  1921 

3  LAKE, 

"reasurer. 

70 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


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FINANCIAL  STATEMENTS  AND  REPORTS 


71 


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72 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXXII. — Form  of  Profit  and  Loss  Statement  Recommended  by  The 
Federal  Reserve  Board. 

FORM    FOR   PROFIT   AND   LOSS   ACCOUNT 

Comparative  Statement  of  Profit  and  Loss  for  Three  Years  Ending • 


19— 


Year  ending 

19— 

19— 

19- 

Gross  sales 

Less — Outward  freight,  allowances,  and  returns 

$ 

S 

S 

Net  sales 

1 

Inventory,  beginning  of  year 
Purchases,  net 

Less — Inventory,  end  of  year 

Cost  of  sales 

Gross  profit  on  sales 

Selling  expenses  (itemized  to  correspond  with  ledger  ac- 
counts kept) 

Total  selling  expense 

General  expenses  (itemized  to  correspond  with  ledger  ac- 
counts kept) 

Total  general  expense 

Administrative   expenses   (itemized   to  correspond   with 
ledger  accounts  kept) 

Total  administrative  expense 

Total  expenses 

Net  profit  on  sales 

Other  income: 

Income  from  investments 
Interest  on  notes  receivable,  etc. 

Gross  income 

Deductions  from  income: 
Interest  on  bonded  debt 
Interest  on  notes  payable 

Total  deductions 

Net  income — profit  and  loss 

Add — Special  credits  to  profit  and  loss 

Deduct — Special  charges  to  profit  and  loss 

Profit  and  loss  for  period 
Surplus,  beginning  of  period 

1 

Dividends  paid 

Surplu!?,  ending  of  period 

i 

FINANCIAL  STATEMENTS  AND  REPORTS 


73 


Form  XXXIII. — Certificate  of  Condition  required  to  be  filed  by  Massa- 
chusetts corporations. 

CERTIFICATE  OF  CONDITION. 

[Acts  of  1903,  Chap.  437.] 

Section  45.  Every  corporation  shall  annually,  within  thirty  days  after  the  date  fixed  in 
its  by-laws  for  its  annual  meeting  last  preceding  the  date  of  such  report,  or  within  thirty 
days  after  the  final  adjournment  of  such  meeting,  but  not  more  than  three  months  after 
the  date  so  fixed  for  said  meeting,  prepare  a  report  of  condition  which  shall  be  signed  and 
sworn  to  by  its  president,  treasurer  and  at  least  a  majority  of  its  directors. 


It  is  expected  that  this  blank  can  be  readily  filled  from  the  report  of  affairs  made  to  the 
stockholders  at  their  annual  meeting. 

Corporations  with  a  capital  of  $100,000  or  more  must  appoint  an  auditor  to  certify  this 
certificate.  (See  chapter  437,  section  47.)  [The  fee  for  filing  this  certificate  is 
$10.00,  which  should  accompany  the  certificate.  Checks  should  be  made 
payable  to  the  order  of  the  "  Commonwealth  of  Massachusetts."] 


We, 
and 


President, 


Treasurer 


being  a  majority  of  the  directors  of  the  Corporation  named  below,  in  compliance  with  the 
provisions  of  chapter  437  of  the  Acts  of  1903,  and  all  acts  in  amendment  thereof  and  in 
addition  thereto,  do  hereby  certify 

(1.)   That  the  name  of  said  corporation  is 

(2.)   That  the  location  of  its  principal  office  in  this  Commonwealth  is  No. 

Street,  [City  or  Town],  and  outside  this  Commonwealth,   No. 

Street,  [City  or  Town],  State  of 

(3.)  That  the  last  annual  meeting  was  held  on  19 

(4.)   That  the  total  amount  of  its  authorized  capital  stock  is  S 

That  said  capital  stock  is  divided  into  shares,  of  which 

shares  are  preferred  and  shares  common,  and  the  par  value  of  each  share  of  said 

preferred  $ 
common  S 
The  amount  issued  and  outstanding  at  said  date  was 

shares  preferred 
shares  common 

The  total  amount  then  paid  thereon  was  •< 

I  common  S 

(5.)  That  the  date  of  its  last  fiscal  year  (which  by  section  20  of  chapter  437  must  be 

not  more  than  90  days  prior  to  the  date  fixed  in  the  by-laws  for  the  annual  meeting)  was 

and  the  assets  and  liabilities  of  the  corporation  on  said 

date  were  as  follows: 


stock 


:erreu 

^1 


Assets 

Liabilities 

Real  estate 

S 

Capital  stock 

$ 

Machinery 

Mortgages 

Furniture,  fixtures  and  tools 

Accounts  payable 

Autos,  trucks  and  teams 

Notes  payable 

Merchandise 

Surplus 

Notes 

Profit  and  loss 

Accounts  receivable 

Cash 

Securities 

Patent  rights 

Trade-marks 

Good-Will 

Profit  and  loss 

Total 

Total 

[Over] 


74 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


(6.)  That  the  names  and  addresses  of  all  the  directors  and  officers  of  the  corporation 
and  the  dates  at  which  the  term  of  office  of  each  expires  are  as  follows: — 


Name  of  Office 


Names 


Addresses 


Expiration  of  Term  of  Office 


President, 
Treasurer, 
Clerk. 


Directors. 


THE  PRESIDENT,   TREASURER  AND  A  MAJORITY  OF  DIRECTORS 
SHOULD  SIGN  IN  THE  SPACE  BELOW. 

In  Witness  Whereof,  we  have  hereunto  signed  our  names,  this 

in  the  year  nineteen  hundred  and  twenty 


day  of 


The  Commonwealth  of  Massachusetts 


192 


Then  personally  appeared  the  above-named  officers 


and  severally  made  oath  that  the  foregoing  certificate,  by  them  subscribed,  is  true  to  the 
best  of  their  knowledge  and  belief. 

Before  me, 

Justice,  of  the  Peace. 

[If  out  of  Massachusetts,  oath  may  be  taken  before  a  commissioner  for 
Massachusetts,  or  a  Notary  Public;  if  within  Massachusetts,  before  a  Notary 
Public  or  a  Justice  of  the  Peace. 1 


Ml 

.s 


FINANCIAL  STATEMENTS  AND  REPORTS  75 

The  committee  selected  at  the  annual  meeting  of  this  corporation,  which  has  an  out- 
standing capital  stock  of  $100,000  or  more,  at  a  meeting  held  at 

on  the  day  of  ,  A.  D.  192     ,  has  employed 

of 
as  Auditor,   pursuant   to   the  provisions   of 
section  47  of  chapter  437  of  the  Acts  of  1903,  and  of  chapter  326,  Acts  of  1909. 


Auditor's  Certificate. 

(To  be  used  only  by  corporations  having  a  paid-in  capital  of  $100,000,  or  more.) 

This  auditor  must  not  be  a  bookkeeper,  treasurer  or  other  officer  of  this  corporation,  who 

has  already  signed  and  executed  this  statement.     (Chap.  300  of  the  Acts 

of  1908.) 

192     . 
I,  of  the  duly 

selected  Auditor  of 

a  corporation  duly  established  by  law,  hereby  certify  that  I  have  completed  the  exami- 
nation of  the  books  of  said  corporation,  and  its  certificate  of  condition  as  executed  by  its 
officers,  to  which  this  certificate  is  attached,  and  that  I  find  that  said  certificate  represents 


the  true  condition  of  the  affairs  of  said  corporation  as  disclosed  by  its  books.  This  cer- 
tificate is  made  by  me  in  compliance  with  the  provisions  of  section  47,  chapter  437,  of 
the  Acts  of  1003. 

Atiditor. 


The  Commonwealth  of  Massachusetts. 

,  ss.  192 

Then  personally  appeared  the  above-named 
and  made  oath  that  the  above  certificate  by  him  subscribed  is  true. 

Before  me. 

Justice  of  the  Peace. 


76  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XXXIV. — American  Writing  Paper  Company — Balance  Sheet,  Profit 

and  Loss  Statement,  and  Surplus  Account. 

AMERICAN   WRITING    PAPER   COMPANY 

Holyoke,  Mass. 

December  31,  1918 

Balance  Sheet 

Assets 
Property  Account: 

Reproductive  Value  of  Real  Estate,  Buildings,  Machin- 
ery, Water  Power,  etc.,  as  appraised  by  The  American 
Appraisal  Company,  March  31,  1917,  with  subsequent 
additions  and  deductions  to  December  31,  1918,  cer- 
tified to  by  them  $21  570  686  84 
Less — Allowance  for  Depreciation  5  937  150  54     $15  633  536  30 

Good  Will,  Trade  Marks,  etc.:  

As  of  date  of  organization  18  010  150  41 

Current: 

Cash  $  1  053  747  47 

Accounts  Receivable — Customers' 

Less — Allowance  for  Doubtful  Accounts,  Discounts, 

etc.  2  522  008  14 

Merchandise  Inventories  $5  800  608  12 

Less— Reserve  330  907  03         5  469  701  09 

Liberty  Bonds — Company  and  Employees   65  810  11         9  111  266  81 

Sinking  Fund:  

Cash  and  Treasury  Certificates  120  345  92 

Other  Assets: 

Notes  Receivable  (Secured)  $         20  154  44 

Special  Loan  (Secured)  10  000  00 

Sundry  Accounts  Receivable  12  985  01  43  139  45 

Investments: 

^Accruedl^arnings  840  00  33  555  00 

Deferred  Charges: 

Unexpired  Insurance  Premiums 

Sundry  Prepaid  Expenses,  etc.  2  100  00  77  839  75 

$43  029  833  64 
Liabilities  •=^^=^==. 

Capital  Stock: 

Preferred — 7%  Cumulative: 

""Authorized  and~Issued  $12  500  000  00 

Common: 

"Authorized  and  Issued  9  500  000  00     $22  000  000  00 

Bonded  Debt:  

6%   First  Mortgage  Sinking  Fund  Bonds  due  July  1, 
1919 
Authorized  and  Issued  $17  000  000  00 

Less— Purchased— Held  by  Trustee      $3  777  000  00 

In  Treasury  2  223  000  00         6  000  000  00       11  000  000  00 

Current: 

Notes  Payable — Bank  Loans 

Trade  Acceptance 

Accounts  Payable 

Accrued  Wages,  Taxes,  etc.  128  257  77         2  818  046  26 

Bond  Purchase  Account  623  626  94 

Reserve: 

"FoTWar  Taxes  '                                                                           185  014  53 

Surplus  6  403  145  91 

Note  "A" — The  Company  was  contingently  liable  on 
the  above  date,  as  endorser  on  Trade  Acceptance  and 
Notes  Receivable  discounted  at  Banks,  in  the  sum  of 
$449,451.61. 

Note  "B" — Since  the  organization  of  the  Company 
in  July,  1899,  there  has  been  paid  10%  on  the  cumulative 
Preferred  Stock. 


$ 

32  715  00 
840  00 

s 

38  646  09 

37  093  66 

2  100  00 

$ 

840 

000 

00 

529 

772 

46 

1  320 

016 

03 

128 

257 

77 

$43  029  833  64 


FINANCIAL  STATEMENTS  AND  REPORTS 
Income  Account  for  the  Year 


77 


Gross  Sales  Billed: 
To  Customers 
Inter-Division  Sales 
Total 

Cost  of  Sales: 


Raw    Materials,    Conversion,    Labor,    Mill    Expenses, 

Taxes,  Freight,  Shipping,  etc. 
Depreciation,    Maintenance     and     Repairs,    Millwright 

Labor,  etc. 

Gross  Profit  on  Sales 


Expenses: 

Selling  and  General  Administrative 


Other  Income: 

Interest  and  Discount  Earned 
Scrap  Sales  and  Sundry  Income 


Income  Charges: 

Discount  on  Sales,  etc. 
Sundry  Charges 

Net  Operating  Profit 

Interest  and  Reserves: 

Bond  Interest,  Net  to  Public 
Reserve  for  Inventories  and  War  Taxes 
Net  Addition  to  Surplus 


$21  023  478  55 

304  298  63 

$21 

327  777  18 

$17  117  682  09 

1  017  577  18 

18 

135  259  27 

$  3 

192  517  91 

128  902  11 
142  317  90 


671  442  68 
189  138  02 


554  359  44 
225  000  00 


571  168  34 
$  2  621  349  57 


271  220  01 
$  2  892  569  58 


860  580  70 
$  2  031  988  88 


779  359  44 
$1  252  629  44 


Surplus  Account 
Balance — per  Books,  January  1,  1918 

Additions: 

Net  addition  as  shown  in  Statement  of  Income  Account 
for  the  Year 

Deductions: 

Net  reduction  in  value  of  Mill  Property  as  result  of 
appraisal  on  property  not  heretofore  appraised,  re- 
construction, depletion,  etc.  $ 

Net  Sundry  Adjustments  

Surplus  per  Balance  Sheet 


393  819  19 
9  051  43 


$  5  553  387  09 


1  252  629  44 
$  6  806  016  53 


402  870  62 
$  6  403  145  91 


78 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form  XXXV.  -Willys-Over 

THE   WILLYS- 

And   Subsidiary 

Balance  Sheet, 


Assets 


Property  Account: 

Land,  Buildings,  Plant  and  Equipment: 
Land 
Buildings 

Machinery  and  Equipment 
Tools,    Dies,    Patterns   and    Drawings 

(Depreciated  Value) 
Furniture  and  Fixtures 
Automobile  and  Truck  Equipment  in 

Service 
Leasehold  Investments 

Totals 

Deduct — Reserve  for  Depreciation  and  Accruing  Renewals^ 
Balance  at  December  31,  1916 

Amount  provided  out  of  earnings  for  the  year,  exclusive 
of  provision  for  Depreciation  of  Tools,  Dies,  Patterns, 
etc.  ($1,030,000.00)  deducted  from  the  Asset 
Together 
Less — Replacement  Expenditures  and  Losses  on  Disman- 
tled Property 

Goodwill,  Patents,  Trade-Marks,  etc. 
Total  Property  Investment 

Investments  in  and  Advances  to  Other  Companiea 

Current  Assets: 

Inventories  of  Raw  and  Worked  Material,  Supplies, 
Unassembled  Parts,  Service  Stock  and  Cars  on  Hand 
and  in  Transit,  at  or  below  cost 

Balance  due  from  European  Distributing  Agent 
Accounts  Receivable,  Less  Reserves 

Notes  Receivable  (Distributors'  and  other  Notes) 

Guaranty  Securities  Corporation  Certificates  of  Bene- 
ficial Interest  in  Customers'  Deferred  Instalment 
Notes 

Liberty  Bonds  Purchased  for  Employees,  less  payments 
thereon 

Miscellaneous  Investments 

Cash  in  Banks  and  on  Hand 

Deferred  Charges  to  Future  Operations: 
Prepaid  Interest,  Insurance,  etc. 


:           "1 

Factory 
Property 

Branch  House 
Property 

Together 

$       902  180  58 
11  464  888  65 
11  217  432  21 

$1  855  919  47 

5  037  612  48 

211  765  63 

$  2  758  100  05 
16  502  501  13 
11  429  197  84 

2  239  846  50 
325  779  46 

15  890  73 
186  608  07 

2  255  737  23 
512  387  53 

118  966  57 

139  483  10 
348  565  83 

258  449  67 
348  565  83 

$26  269  093  971  $7  795  845  31 

$34  064  939  28 1 

$  1   594  096  81 

1  330  798  12 

2  924  894  93 

150  111  93 


2  774  783  GO 
$  31   290   156  28 

14  059  932  2\ 
%  45  350  088  49 

8  021  326  43 


$40  589  808  12 

112  756  14 

3  642  568  10 

1  884  951  68 


978  250  27 

515  165  50 
2  094  714  59 
9  593  870   15 


59  412  084  55 


609  201  61 


Total  Assets 


$113  292  701  08 


FINANCIAL  STATEMENTS  AND  REPORTS  79 

land  Company — Balance  Sheet. 
OVERLAND   COMPANY 

Companies 

December  31,  1917 

Liabilities 
Capital  Stock: 

7%  Cumulative  Preferred  Stock — 100,000  Shares  of 

SIOO.OO  each  $10  000  000  00 

7%     Cumulative     Convertible     Preferred     Stock — 

150,000  Shares  of  $100.00  each  15  000  000  00 

Common  Stock: 

2,000,000  Shares  of  $25.00  each  50  000  OOP  00 

$75  OOP  000  00 
Issued  and  Outstanding: 

7%  Cumulative  Preferred  Stock  $  3  473  600  00 

7%  Cumulative  Convertible  Preferred  Stock  14  532  500  00 

Common  Stock  $41  610  875  00 

Scrip  Certificates  in  respect  of  frac- 
tional shares  of  Stock  10  006  25 
Together                                        $41  620  881  25 
Less — Employees'  Stock  Subscriptions 

Unpaid  2  235  418  83     39  385  462  42     $  57  391  562  42 

Purchase  Money  Obligations: 

Reaf  Estate  Mortgages  assumed  225  OOP  00 

Total  Capital  Obligations  $~57  616  562  42 

Current  Liabilities: 
Notes  Payable: 

Bank  Loans  $16  119  700  00 

U.    S.    Government    (Advances   on 

Contract)  2  500  000  00 

Sundry  Persons  1  818  160  61     $20  437  860  61 

Accounts  Payable  6  926  635  34 

Payrolls  and  Salaries  Accrued  353  744  73 

Dealers'  Initial  Payments  628  065  46 

Taxes  and  Interest  Accrued,  Provision  for  Premiums  to 
Distributors  and  Dealers,  Reserve  for  Repairs  under 
Guarantee,  etc.  1  245  841  41 

Preferred  Stock  Dividend,  declared  payable  January  1, 

1918  315  106  75         29  907  254  30 

Reserve  Funds: 


For  Future  Contingencies  $  1  000  000  00 

For  Redemption  of  Preferred  Stock  450  000  00 

Surplus  arising  from  Redemption  of  Preferred  Stock  17  500  00  1  467  500  00 

Surplus: 

Balance  at  January  1,  1917  $27  596  594  21 

Add — Net  Profits  and  Income  for  the  year  ending  De- 
cember 31,  1917,  as  per  statement  attached  6  121  543  77 
Together                                                                   $33  718  137  98 
Deduct: 

Dividends  paid  and  declared: 
In  Cash: 

On   Preferred 

Stock  $1   138  340  61 

On    Common 

Stock  4  885  236  75     $6  023  577  36 

In  Stock  1  965  991  25 

Provision  for  Redemption  of  Preferred 

Stock  450  000  00 

Good- Will  of  Subsidiary  Company  Pur- 
chased and  Written  Off  74  243  47 
Development  expense  attributable  to 
new  work  for  1918  delivery  wTitten 

off,  per  resolution  of  Directors  902  941   54       9  416  753  62         24  301  384  36 

Total  Liabilities.  Capital  and  Surplus  $113  292  701  08 


80 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Form   XXXVI. — Westinghouse    Electric    and    Manufacturing    Company — 
Consolidated  Balance  Sheet  and  Profit  and  Loss  Statement. 

WESTINGHOUSE    ELECTRIC    &    MANUFACTURING    COMPANY 

And  Its  Proprietary  Companies 

Consolidated  General  Balance  Sheet 


March  31,  1921 


Assets 


Property  and  Plant: 


Factory    Plants— Real    Estate, 
Bmldings,  Equipment,  etc.       $  48  708  477  52 


Liabilities 


Capital  Stock: 


Preferred 
Common 

Total  Capital  Stock 


S  3  998  700  00 

70  813  950  00 

t   74  812  650  00 


Investments: 
Stocks,  Bonds,  Debentures,  etc., 
of  other  Companies  including 
those  of  European  and  Cana- 
dian Companies 


$  16  624  716  53 


Funded  Debt: 
Seven  Per  Cent  Gold  Bonds  due 

May  1,  1931  $  30  000  000  00 

Westinghouse  Machine  Co.  Is- 
sues: 
First  and   Refunding   Mort- 
gage Bonds,   due  Nov.   1, 
1940  6  168  000  00 

Five   Per   Cent  Bonds,   due 
May  1,  1926  107  000  00 

Total  Funded  Debt  $  36  275  000  00 


Real    Estate    Purchase    Money 

Mortgage 


60  000  00 


Current  Assets: 
""^sh 

Cash  with  Agents  and  Others 

Cash  on  Deposit  for  redemption 
of  Bonds  and  for  Interest  and 
Dividends 

Notes  Receivable 

Accounts  Receivable 

Inventories — Raw  Materials  and 
Supplies,  Finished  Parts  and 
Machines,  Work  in  Progress, 
Goods  on  Consignment  and 
Apparatus  with  Customers — 
valued  Dec.  31,  1920,  at  cost 
or  market  values 

Total  Current  Assets 


11  311  325  92 
1  013  211  27 


40  992  00 

7  697  712  25 
34  551  599  84 


Current  Liabilities: 

Notes  Payable 

Accounts  Payable 

Interest,  Taxes,  Royalties,  etc.. 
Accrued,  not  due 

Dividend  on  Preferred  Stock, 
payable  April  15 

Dividend  on  Common  Stock, 
payable  April  30 

Advance  Payments  on  Con- 
tracts 

Subscriptions  to  Securities,  etc. 

Unpaid  Bonds  and  Interest  and 
Dividends 


$  20  775  000  00 

6  651  601  84 

4  341  472  37 
79  974  00 

1  416  279  00 

8  580  674  18 

2  862  689  69 

40  092  00 


80  724  389  22 
$135  339  230  50 


Total  Current  Liabilities    $  44  748  683  08 


Other  Assets: 
Patents.  Charters  and  Franchises  $    4  601  605  29 
Insurance,  Taxes,  etc.,  paid  in 


advance 

Total  Other  Assets 
Total 


990  488  00 


$  5  592  093  29 

$206  264  517  84 


Reserves: 
Contingent  Reserve  for  further 
possible  Shrinkages  in  In- 
ventories 
AH  Other  Reserves 

Total  Reserves 

Profit  and  Loss — Surplus 
Total 


$    8  102  904  64 


$  42  265  280  12 

$206  264  517  84 


Contingent  Liability  on  Foreign 
Drafts,  Acceptances,  etc. 


601  674  63 


FINANCIAL  STATEMENTS  AND  REPORTS  81 

WESTINGHOUSE    ELECTRIC    &    MANUFACTURING    COMPANY 

And  Its  Proprietary  Companies 
Consolidated  Statement  of  Income  and  Profit  and  Loss  for  the  Year  Ended 
.      March  31,  1921 


Gross  Earnings: 
^Sales  BiUed 

Coat  of  Sales: 
Factory  Cost,  including  all  Expenditures  for  Patterns,  Dies,  and  New 
Small  Tools  and  Sundry  Other  Betterments  and  Extensions;  also 
depreciations  of  Property  and  Plant,  Inventory  Adjustments  and 
Depreciations  and  all  Selling,  Administration,  General  and  Develof)- 
ment  Expenses  and  all  Taxes 

Net  Manufacturing  Profit 

Other  Income: 
Interest,  Discount,  Royalties,  etc  S3  078  735  53 

Dividends  and  Interest  on  Sundry  Stocks  and  Bonds  Owned  600  728  68 

Gross  Income  from  All  Sources 

Deductions  from  Income: 
Interest  on  Bonds  and  Notes  Payable  $2  764  648  28 

Miscellaneous  503  302  17 

Net  Income  Available  for  Dividends  and  Other  Purpoiea 

Surplus,  March  31,  1920 
Total 


$150  980  106  39 


138  774  084  88 
$  12  206  021  81 


3  679  464  21 
$  15  885  486  02 


3  267  950  45 
$  12  617  535  57 


43  435  763  55 
$  56  053  299  12 


Profit  and  Loss  Charges: 
Dividends  on  Preferred  Capital  Stock  $    319  896  00 

Dividends  on  Common  Capital  Stock  5  664  998  00 

Appropriation  for  Contingent  Reserve  for  further  possible  Shrinkages 

in  Inventories  5  000  000  00 

Discount  and  Expenses  in  re  Issue  of  Ten  Year  Bonds  2  803  125  00 

Surplus  per  Balance  Sheet 


13  788  019  00 
$42265280  12 


82 


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90  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XXXVIII. — American  Locomotive  Com 

AMERICAN  LOCOM 

Montreal  Locomotive  Works,  Ltd.,  and  Ameri 

Consolidated  Gene 

Assets                                  Dec.  31,  1919  Dec.  31,  1918 
Cost  of  property  (less  depreciation  re- 
serves)                                                         $42  421  288  96  $44  337  304  55 
Sundry  securities  owned                                     680  128  74  641  702  74 

Current  Assets: 

Cash  on  hand  and  in  banks 

Accounts  and  Bills  Receivable 

United  States  Railroad  Administra- 
tion Certificates  of  Indebtedness 

United  States  Treasury  Certificates 

United  Kingdom  Three-year  5^%  Con- 
vertible Gold  Notes 

United  States  Liberty  Loan  Bonds 

Canadian  Victory  Loan  Bonds 

Employes'  Subscriptions  for  United 
States  Liberty  Loan  Bonds  (less  in- 
stallment payments) 

Employes'  Subscriptions  for  Canadian 
Victory  Loan  Bonds  (less  install- 
ment payments) 

Accrued  Interest 

Materials  and  Supplies 

Contract  Work  in  Process 

Locomotives  and  Parts  in  Stock 
Total  Current  Assets 
Sundry  deferred  charges 


3  177 

631 

31 

4 

407 

123  72 

5  889 

590 

82 

15 

123 

714  94 

25  800 

000 

00 

980 

000 

00 

4  410 

500 

00 

2 

168 

350  00 

1  574 

500 

00 

510 

450  00 

160 

750 

50 

1 

329 

384  00 

45 

374 

00 

135 

576  00 

283 

493 

65 

25 

376  52 

5  873 

327 

96 

11 

623 

701  08 

1  297 

476 

58 

9 

690 

223  52 

193 

342 

26 

118 

453  05 

$49  686 

027 
355 

08 
67 

$45 

132 

352  83 

388 

109 

245  87 

^rotal  Assets  $93  175  800  45     $90  220  605  99 


FINANCIAL  STATEMENTS  AND  REPORTS  91 

pany — Income  Account  and  Balance  Sheet. 

OTIVE  COMPANY 

CBJi  Locomotive  Sales  Corporation — Combined 

ral  Balance  Sheet 

Liabilities  Dec.  31,  1919        Dec.  31,  1918 

Capital  Stock: 

Preferred  $25  000  000  00  $25  000  000  00 

Common  25  000  000  00      25  000  OOP  00 

$50  OOP  OOP  00  $50  000  OOP  00 

Bonded  debt  of  constituent  companies: 
Locomotive  and  Machine  Company  of 

Montreal,  Ltd.  $  1  5PP  PPP  PP     $  1  5PP  PPP  PP 
Richmond  Locomotive  and  Machine 

Works  432  POO  00             432  000  OP 

Henrico  Iron  Works  Corporation 25  PPP  PP 

Total  Bonded  debt  $  1  932  PPP~PP     $  1  957  PPP  PP 

Cm'rent  Liabilities : 

Accounts  Pliyabie  $  1  347  P13  66     $  4  6P3  895  23 

Dividend  Payable  on  Preferred  Stock  437  5PP  PP 

Dividend  Payable  on  Common  Stock  312  5PP  PP 

Excess  Payments  on    Contracts    not 

Finally  Adjusted  6  51P  575  64 

Unclaimed  Interest  and  Dividends  3  319  25  3  147  25 

Loans  Payable: 

Purchase  of  Liberty  Loan  Bonds  2  94P  000  PP 

Other  Loans  Payable 
Accruals  for  United  States  and  Cana- 
dian Income  and  War  Taxes  5  615  960  11         6  750  800  75 
Sundry  Accrued  Expenses  523  147  06  431  767  26 
Total  Current  Liabilities                   $14  OOP  015  72     $15  479  61P  49 
Reserves    for  Accident  Indemnity  and 

Miscellaneous  Items  $       834  61P  58     $       996  254  45 

Reserve  for  Additions  and  Betterments      3  615  93P  P4         1  363  766  PS 

Profit  and  Loss: 

Balance  brought  forward  21  841  P73  61 
Add — Profits  for  six  months'  period  as 

shown  in  condensed  income  account  952  17P  5P     

Surplus  carried  forward  $22  793  244  11     $2P  423  975  P2 

Total  Liabilities,  Reserves,  Capital,  and 

Surplus  $93  175  8PP  45     $9P  22P  605  99 


92  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

AMERICAN  LOCOMOTIVE  COMPANY 

Montreal  Locomotive  Works,  Ltd.,  and  American  Locomotive  Sales 
Corporation — Combined 

Condensed  Income  Account 

6  months  ended  12  months  ended 
Dec.  31,  1919        Dec.  31,  1918 
Gross  earnings  $20  630  083  81     $70  073  581  93 

Manufacturing,    maintenance    and    ad- 
ministrative expenses  and  depreciation 
Manufacturing  profit 
Interest,  etc.,  on  bonds  of  constituent 
companies,  loans  payable,  etc. 

Deduct  for  United  States  and  Canadian 

income  and  war  profits  taxes 
Available  profit 
Dividends  on  preferred  stock 
Dividends  on  common  stock 
Surplus 

Reserve  for  additions  and  betterments 
Net  credit  to  profit  and  loss 


17  532 

188 

11 

$  3  097  895  70 
59  325  99 

$  3  038  569  71 
461  399  21 

$  2  577 
875 
750 

170 
000 
000 

50 
00 
00 

$   952 

170 

50 

$   952 

170 

j50 

58 

115  819  50 

$11  957  762  43 
228  189  02 

$11 
2 

729 
235 

573 
304 

41 

32 

$  9  494  269  09 
1  750  000  00 
1  375  000  00 

$  6  369  269  09 
4  000  000  00 

$  2 

369 

269 

09 

Profit  earned  on  common 
stock  after  deducting 
preferred  dividend 

Amount  $1  702  170  50 

$  7  744  269  09 

per  share        $6  81 

$30  98 

FINANCIAL  STATEMENTS  AND  REPORTS 


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ACCOUNTING  PROBLEMS:  INTERMEDIATE 


THE  ATCHISON,  TUPEKA  &  SAN 
General  Balance  Shee 


Assets 

Railroads,  Franchises  and  Other  Prop- 
erty, including  Stocks,  Bonds,  etc. 
(Exhibit  A) 

Expenditures  for  Additions  and  Better- 
ments, Construction  and  other  Capi- 
tal  Purposes,  during  Current  Fiscal 
Year  (Exhibit  B) 

Investments,     New    Acquisitions     (Ex- 
hibit C) 
Sinking  Fund 
Other  Investments 

Balance  brought  down 

Current  Assets: 

U.    S.    Government — Accrued    Com- 
pensation 
Cash 

Time  Deposits 
Special  Deposits 
Loans  and  Bills  Receivable 
Traffic  and  Car  Service  Balances 
Miscellaneous  Accounts  Receivable 
Material  and  Supplies 
Interest  and  Dividends  Receivable 
Other  Current  Assets 

Deferred  Assets: 

Working  Fund  Advances 

Guaranty  Trust  Co.  of  N.  Y.  Cash  De- 
posit for  Fuel  Reserve  Fund 

Other  Deferred  Assets 

V.  S.  Government — Deferred  Assets 

T'nadjusted  Debits: 

Rents  and  Insurance  Premiums  Paid 

in  Advance  $       139  186  18 

Other  Unadjusted  Debits  1  431  505  10 

V.  S.  Government — Unadjusted  Debits 


Balances 
Dec.  31,  1919 


$731  110  400  11 


22  512  037  77 

$753  622  437  88 

15  885  799  01 

819  06 

35  394  013  76 

$804  903  069  71 

$172  302  412  01 

$53 

169  398  06 

4 

282  650  01 
250  000  00 
248  641  68 

1 

499  589  70 

17  365  74 

618  885  69 

119  989  00 

34  449  04 

181  13 

60  241  150  05 

200  00 

2  103  945  06 
26  330  14 


2  130  475  20 
49  219  874  54 


1  570  691  28 
11  987  583  20 
197  452  186  28 


FINANCIAL  STATEMENTS  AND  REPORTS  95 

TA  FE  RAILWAY  CO.— SYSTEM 
t,  December  31,  1919 


Balances 
Liabilities  Dec.  31,  1919 

Capital  Stock: 

Outstanding  (Exhibit  D)  $347  047  200  00 

Funded  Debt: 

Bonds  Outstanding  (Exhibit  E)  285  553  457  70 

Balance  carried  down  172  302  412  01 

$804  903  069  71 
Current  Liabilities: 

Loans  and  Bills  Payable 

Traffic  and  Car  Service  Balances           $  3  259  22 

Audited  Accounts  and  Wages  Payable  309  500  23 

Miscellaneous  Accounts  Payable  46  555  49 

Interest  Matured  Unpaid  1   138  367  54 

Dividends  Matured  Unpaid  225  187  70 

Funded  Debt  Matured  Unpaid  45  000  00 

Unmatured  Dividends  Declared  6  447  475  00 

Unmatured  Interest  Accrued  3  158  621  30 

Unmatured  Rents  Accrued  39  560  47       11  413  526  95 

Deferred  Liabilities  196  639  49 

U.  S.  Government— Deferred  Liabilities  68  057  090  00 

Unadjusted  Credits: 

Tax  Liability  $  3  499  878  30 

Operating  Reserves  3  204  199  94 

Accrued  Depreciation — Equipment         46  681  481  40 

Other  Unadjusted  Credits  10  233  092  60       63  618  652  24 

U.  S.  Government— Unadjusted  Credits  278  054  40 

Corporate  Surplus: 

Additions  to  Property  through  Income 

and  Surplus  $86  260  798  44 

Funded  Debt  Retired  through  Income 

and  Surplus  34  504  94 

California-Arizona  Lines  Bonds — Sink- 
ing Fund  Reserve  108  166  65 
The  S.  F.  &  S.  J.  V.  Ry.  Co.  Bonds- 
Sinking  Fund  Reserve  14  118  28 
Reserve  for  Fuel  Lands                                2  103  945  06 

$88  521  533  37 
Profit  and  Loss— Balance  65  366  689  83     153  888  223  20 

$297  452  186  28 


96  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

NORTHERN   STATES   POWER   COMPANY 
Consolidated  Balance  Sheet, 

Assets 

Capital  Assets: 

Plant,  Property,  Rights,  Franchises,  etc.,  including  Preferred  Stock  Dis- 
count and  Expense  $67  590  683  34 

Collateral  and  Other  Cash  Deposits: 

Collateral    Cash    Deposited   under    First    and    Refunding 

Mortgage  Bonds  S       12  250  00 

Sinking  Fund  Cash  7  693  24  19  943  24 

Investments  in  Stocks  and  Bonds  of  Other  Companies,  Associations,  etc.  56  475  55 

Debt  Discount  and  Expense  in  Process  of  Amortization  5  102  845  25 

Deferred  Charges  and  Prepaid  Accounts: 


Unexpired  Insurance  S  38  164  50 
Prepaid  Interest  "-  9  753  49 
Miscellaneous  Unadjusted  Items  51  177  48 
Rate  Investigation  Expenses  84  376  08 
Extraordinary  Operating  Expenses  in  Process  of  Amorti- 
zation 129  593  79           313  066  34 


Current  Assets: 

Cash  on  Hand  and  in  Banks  $     602  700  26 

U.  S.  Liberty  Bonds  at  Par  105  600  00 

Cash  Deposited  for  Bond  Interest  10  320  00 

Accounts  and  Notes  Receivable  $1  400  806  44 

Less— Reserve  for  Uncollectible  Accounts  100  444  05     1  300  362  39 


Unbilled  Electricity  and  Gas  285  579  67 

Standard  Gas  and  Electric  Company  790  109  45 

Receivable  on  Sales  of  Preferred  Stock  209  652  63 

Inventories  1  930  796  24       6  235  020  64 


Total  S78  318  033  36 

We  have  audited  the  books  and  records  of  the  Northern  States  Power  Company  op 
Delaware  and  Subsidiaries  for  the  year  ended  December  31,  1920,  and  we  hereby  certify 
that,  in  our  opinion,  the  attached  Consolidated  Balance  Sheet  and  Consolidated  Income 
Account  correctly  reflect  the  financial  condition  at  December  31,  1920,  and  the  results  from 
operations  for  the  year  ended  that  date. 

Henry  Austin  &  Co., 
Chicago,  March  19,  1921.  Certified  Public  Accountants. 


FINANCIAL  STATEMENTS  AND  REPORTS  97 

OF   DELAWARE   AND   SUBSIDIARIES 

December  31,  1920 

Liabilities 

Capital  Stock  of  Northern  States  Power  Company  of  Delaware; 
Authorized : 

7%  Preferred,  500,000  Shares,  $100.00  each  $  50  000  000  00 

Common,  500,000  Shares.  $100.00  each  50  OOP  000  00 

$100  OOP  OOP  00 
Issued  and  Outstanding: 

7%     Preferred,     204,400     Shares, 

$100.00  each  $20  440  000  00 

Less— In  Treasury  99  200  00     i  20  340  800  00 

Common,  61,700  Shares,  $100.00  each  6  170  000  00     $26  510  800  00 

Capital  Stock  of  Subsidiary  Companies  (In  Hands  of  Public) : 
Preferred : 

Ottumwa  Railway  and  Light  Com- 
pany, 7%    '  S       501  500  00 
Southwestern   Minnesota   Division 

Companies,  7%  109  500  00     $         611  000  00 

Common  5  000  00  616  000  00 

Funded  Debt: 

Northern  States  Power  Company  of  Minnesota: 

25- Year  5%   First  and  Refunding  Mortgage  Gold 

Bonds,  due  April  1,  1941  $  24  567  600  00 

25- Year  6%  First  and  Refunding  Mortgage  Gold 

Bonds,  due  April  1.  1941  2  000  000  00 

Minneapolis  General  Electric  Company  30-Year  5% 

First  Mortgage  Bonds,  due  December  1,  1934  7  323  000  00 

Southwestern  Minnesota  Division  Bonds  536  000  00 

Ottumwa  Railway  and  Light  Company  Bonds  1  336  000  00       35  762  500  00 

Unfunded  Debt — Northern  States  Power  Company  of  Minnesota: 

10- Year  6%  Gold  Notes,  due  April  1,  1926  $     7  805  000  00 

6-Year  Sinking  Fund  Convertible  7%  Gold  Notes,  due 

August  15,  1923  1  800  000  00         9  605  000  00 

Current  Liabilities: 


Notes  Payable  $     1  077  500  00 

Accounts  Payable  610  939  33 

Accrued  Interest  586  825  07 

Accrued  Taxes  848  332  77 

Accrued  Preferred  Stock  Dividends  367  344  43 

H.  M.  Byllesby  &  Co.  30  650  36 

Byllesby  Engineering  and  Management  Corporation  16  099  57 

Consumers'  Deposits  108  724  94 

Miscellaneous  Outstanding  Liabilities  36  070  02         3  682  486  49 

Reserves: 

Depreciation  and  Replacements  '    $         757  489  41 

Special  Maintenance,  etc.  63  946  96             821  436  37 

Surplus  1  319  810  50 

Total  $78  318  033  36 


98  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XL. — Northern  States  Power  Company  and  Subsidiaries — Consoli- 
dated Income  Account — Consolidated  Balance  Sheet. 

NORTHERN   STATES   POWER   COMPANY   OF   DELAWARE 
AND   SUBSIDIARIES 

Consolidated  Income  Account 

For  the  Year  Ended  December  31,  1920 

And  Summary  of  Surplus  Account 

Gross  Earnings: 

Electric  Department  $10  264  733  74 

Gas  Department  660  593  60 

Steam  Department  636  993  47 

Telephone  Department  *              75  722  93 

Street  Railway  Department  160  735  10 


Total  Gross  Earnings  $11  798  778  84 

Operating  Expenses  and  Taxes: 

Operation  $5  610  004  90 

Maintenance  799  938  20 

Taxes  921   897  45 


Total  Operating  Expenses  and  Taxes  7  331  840  61 


Net  Earnings  $  4  466  938  23 

Interest  Charges  (Net)  2   148  470  28 


Net  Income  Available  for  Amortization  of  Debt  Discount  and  Expense, 

Depreciation  and  Dividends  $  2  318  467  95 

Deduct: 

Preferred  Stock  Dividends  $1  341  374  22 

Appropriated  for: 

Depreciation  $475  000  00 

Amortization   of   Debt   Discount  and  Ex- 
pense 250  000  00         725  000  00       2  066  374  22 


Balance  Carried  to  Surplus  Account  ■  $       252  093  73 

Surplus,  January  1,  1920  1  067  716  77 


Total  Surplus,  December  31,  1920,  per  Balance  Sheet  t  1  319  810  60 


FINANCIAL  STATEMENTS  AND  REPORTS  99 

Form  XLI. — University  of  Chicago  Balance   Sheet — Statement   of  Income 

and  Expense. 

UNIVERSITY   OF   CHICAGO 

Exhibit  A 

General  Balance  Sheet 

June  30,  19— 

Assets 

Endowment  Assets: 

Investments  of  Endowment  Funds  Uni- 
versity Endowments  (Schedule  1)        J28  252  746  16 
General  Education  Board  999  835  49 


Cash  Awaiting  Investment  University 

(Schedule  V)  S         74  337  37 

General  Education  Board  304  23 


«29  252  581  65 


74  641  60 


$29  327  223  25 


Plant  Assets: 

Buildings  and  Grounds  (Schedule  II)     $11  427  245  50 
Books,    Equipment   and   Furniture 

(Schedule  III)  2  047  911  83 

$13  475  157  33 
Investments  of  Building  Funds  ^Schedule  I)  2  553  020  47 

Cash  on  Hand  (Schedule  V)  44  353  61 

Current  Assets: 

Investments  (Schedule  I): 

Special  Funds  $     4  970  00 

General  Designated  Funds  257  829  86 

Other  Current  Funds  361   181  56 

White  Deposit  33  965  63 

$       657  947  05 
Receivable  (Schedule  IV)  283  728  40 

Materials  and  Supplies  (Schedule  III)  49  632  53 

University  Press  208  749  38 

Cash  on  Hand  (Schedule  V) : 

General  $         28  690  99 

Special  127  051  60 


$16  072  531  41 


1  355  799  95 
$46  755  554  61 


100  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

UNIVERSITY   OF   CHICAGO 

Exhibit  A — Continued 

General  Balance  Sheet 

June  30,  19— 


Liabilities 

Endowment  Funds: 

University  (Schedule  VI)  »28  327  083  53 

General  Education  Board  Funds  Held  in  Trust  for  the 

University  of  Chicago  1  OOP  139  72 

Plant  Funds: 


$29  327  223  25 


16  072  531  4 


Capital  (Schedule  X)  il3  706  649  61 

Deduct  amount  used  as  working  capital  275  350  16 

$13  431  299  45 
Building  and  Equipment  Funds  (Schedule  VIII)  2  641  231  96 


Current  Funds: 

Working  Capital  (see  above)  $       275  350  16 

Special  Funds  for  Designated  Purposes  (Schedule  VII)  18  813  74 

General  Funds  for  Designated  Purposes  (Schedule  IX)  258  029  86 

Income  Credits  (Schedule  XI)  46  554  19 

Reserves  (Schedule  XII)  495  206  32 

Liabilities  (Schedule  XIII)  261  845  68 

$  1  355  799  95 
$46  755  554  61 

The  above  exhibit  is  supported  by  the  following  schedules  which  are  not  reproduced: 
Schedule  I.  Investments 

II.  University  Buildings  and  Grounds 
III    Books,  Equipment,  Material  and  Supplies 
IV.  Accounts  Receivable 
V.  Cash  on  Hand 
VI.  Endowment  Funds  and  Their  Investment 
VII.  Special  Funds  for  Designated  Purposes 
VIII.  Building  and  Equipment  Funds 
IX.  General  Funds  for  Designated  Purposes 
X.  Capital 
XI.  Income  Credits 
XII.  Reserves 
XIII.  Current  Liabilities 


FINANCIAL  STATEMENTS  AND  REPORTS 

UNIVERSITY   OF   CHICAGO 

Exhibit  B 

Statement  of  University  Receipts  and  Expenditures 

Year  Ended  June  30,  19— 


101 


Receipta 

University  General: 

Matriculation  and  Diploma  Fees 

Lectures  and  Concerts 

Rockefeller  Endowment  Income 

Retiring  Allowance  Fund  Income 

Culver-Rosenberger  Funds  Income 

Gallup  Memorial  Fund  Income 

Packer  Annuity  Funds  Income' 

Emily  Talbot  Memorial  Fund  Income 

Prize  Funds  Income 

Permelia  Brown  Aid  Income 

Hitchcock  Fund  Income 

Business  Office  Commissions 

Midway  Properties  Income 

Athletics 

Athletics — High  School 

Locker  Rentab 

Interest 

Miscellaneous  Receipts 

Operation  and  Maintenance  of  Buildings  and  Grounds: 
Room  Rents' 
University  Press  Rent 
Commons  Heat  and  Light 
Harper  Library  Fund  Income 
Yerkes  Endowment  Income 

Libraries,  Laboratories  and  Museums: 
Library  Fines 

Laboratory  Fees  and  Tickets 
Kent  Fund  Income 

Department  of  Arts,  Literature  and  Science; 
Graduate  Tuition 
College  Tuition 
University  College  Tuition 
Culver  Fund  Income 
Ogden  Fund  Income 
Haskell  and  Barrows  Funds  Income 
Fellowship  and  Scholarship  Funds  Inoome 
Reynolds  Fund  Income 
Carried  Forward 


$1  162  174  52 


$  25  987  50 

1  834  70 

985  630  08 

24  647  58 


1  750  00 

1  431  25 

561  00 

775  00 

412  50 

1  320  47 

1  200  00 

26  765  98 
7  257  36 

28  108  60 

959  88 

10  431  54 

27  428  45 
15  690  63 


80  217  12 

%   57  828  75 

5  000  00 

5  350  00 

9  615  00 

2  423  37 

34  758  61 

S  1  562  22 

30  685  68 

2  510  71 

484  971  20 

$  75  706  01 

303  269  08 

30  329  23 

35  650  18 

31  042  98 

1  965  96 

5  553  78 

1  453  98 

$1  762  121  45 


102  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

UNIVERSITY   OF   CHICAGO 

Exhibit  B — Continued 

Statement  of  University  Receipts  and  Expenditures 

Year  Ended  June  30,  19— 


Receipts 


Brought  Forward 

Divinity  School: 
Matriculation  Fees 
Tuition  Fees 
Room  Rents 

Rockefeller  Fund  Income 
Baptist  Theological  Union 
University  Endowment  Income 
Scholarship  Fund  Income 

Law  School: 


Tuition 


School  of  Education: 

College  of  Education  Tuition 
School  of  Education  Fund  Income 
Secondary-School  Tuition 
Crerar  Fund  Income 
McBirney  Fund  Income 
Elementary-School  Tuition 

School  of  Commerce  and  Administration: 
Tuition 

Laboratory  Fees 
Williams  Fund  Income 

Publications: 


755  00 
13  866  82 
6  466  92 
4  967  05 
13  129  77 
19  676  50 
355  00 


$  15  202  86 


66  481  44 
21  066  09 
80  571  64 
2  643  77 
250  00 
46  460  82 


$  40  334  29 

3  784  00 

19  677  71 


$1  762   112  45 


59  217  06 


The  receipts   of  the  journals  are  credited  to  the  expenses, 
showing  the  net  cost  under  "Budget  Expenditures" 

University  Extension: 

Lecture-Study  Fees  S  4  975  25 

Correspondence-Study  Fees  55  644  60 

Institute  of  Sacred  Literature  3  478  25 

Total  Receipts 


15  202  86 


217  473  76 


63  696  00 


64  098  00 


S2  181  809  13 


FINANCIAL  STATEMENTS  AND  REPORTS 


103 


UNIVERSITY   OF   CHICAGO 


Exhibit  B — Continued 

Statement  of  University  Receipts  and  Expenditures 

Year  Ended  June  30,  19— 

- 

Expenditures 

University  General: 

$ 

351 

904  49 

Educational: 

Administrative  Offices 

$  61  285  05 

Convocation  and  Diplomas 

4  774  88 

OflScial  Documents 

20  432  66 

General  Expense 

9  809  66 

Business: 

Administrative  OflSces 

97  213  11 

Business  General 

7  995  87 

Student  Welfare: 

Housing  and  Employment  Bureaus 

9  740  86 

Chapel,  Music  and  Lectures 

9  413  04 

Social  Activities,  Ida  Noyes  Hall 

7  854  37 

Aids  and  Prizes 

1  714  97 

Daily  Maroon  Subsidy 

695  00 

Hitchcock  Fund  Expense 

1  200  00 

University  Bank 

2  782  15 

Alumni  Subsidies 

2  250  00 

Athletics  and  Gymnasium  Expense 

39  587  96 

Public  Health  Expense 

7  250  28      . 

Physical  Culture  Instruction  and  Expense 

19  560  45 

Telephones 

7  961  60 

Retiring  Allowances 

24  647  58 

Annuities 

15  735  00 

Operation  and  Maintenance  of  Buildings  and  Grounds: 

$  11  064  26 

369 

854  84 

Administration 

Campus  Maintenance 

9  720  34 

Furniture 

7  908  71 

Engineers,  Firemen,  Janitors 

106  255  65 

Repairs 

73  797  49 

Insurance 

8  442  75 

Yerkes  Observatory  Expense 

9  951  66 

Harpier  Library  Expense 

12  001   10 

Greenwood  Hall  Expense 

6  420  89 

Fuel 

92  465  00 

Supplies  and  Miscellaneous 

31  826  99 

246 

Libraries,  Laboratorirs  and  Museums: 

300  21 

Administration 

$  93  866  97 

Student  Service 

17  553  93 

Books 

20  700  00 

Equipment  and  Expense 

103  880  86 

Binding 

10  298  45 

738 

Departments  of  Arts,  Literature  and  Science: 

147  91 

Deans 

t     8  066^ 

Instruction 

633  492  84 

University  College  Instruction 

21  729  59 

University  College  Expense 

8  099  90 

Fellowships 

14  855  46 

Scholarships 

51  903  28 

Carried  Forward 

SI 

706 

207  45 

104 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


UNIVERSITY   OF  CHICAGO 

Exhibit  B — Continued 

Statement  of  University  Receipts  and  Expenditures 

Year  Ended  June  30,  19— 

Expenditures 
Brought  Forward 
Divinity  School: 

Administration  Expense 

Instruction 

Books 

Fellowships  and  Scholarships 

Dormitories  Expense 

Law  School: 

Administration  Expense 

Instruction 

Books 

Scholarships 

Library  Administration 

OflBce  Documents 

School  of  Education: 

(1)  College  of  Education: 
Administration  Expense 
Instruction 

Scholarships,  Fellowships  and  Student  Ser- 
vice 

(2)  Secondary  School: 
Administration  Expense 
Instruction 


$1  706  207  46 

59  217  06 

% 

3  400  00 
33  375  00 

1  100  00 
15  180  28 

6  161  78 

58  086  61 

% 

3  699  95 

46  845  53 

3  000  00 

1  536  44 

2  506  51 
498  18 

245  878  74 

$107  678  47 

S  6 

897 

15 

93 

727 

89 

7  053  43 

67  292  37 

$  6  161  38 

58  476  99 
Student  Service  and  Crerar  and  McBirney 

Scholarships  2  654  00 

(3)  Elementary  School: 

Administration  Expense  %  3  460  00 
Instruction  33  559  66 
Student  Service  360  00 

(4)  School  of  Education,  General: 

Instruction  $12  291  31 
Equipment  and  Expense  19  078  49 
Books  2  158  44 

School  of  Commerce  and  Administration: 


Administration  Expense 

Instruction 

Books 

Supplies  and  Equipment 

Publications: 
Journals 
Departmental  Publications 

University  Extension: 

Lecture-Study  Instruction 
Lecture-Study  Expense 
Correspondence-Study  Instruction 
Correspondence-Study  Expense 
Institute  of  Sacred  Literature 
Total 


37  379  66 


33  528  24 


S     2  184  29 
16  735  24 

1  220  00 
6  660  22 

$  24  442  31 

800  00 

$     4  380  00 

2  765  74 
25  369  11 
22  179  98 

3  478  25 


26  799  75 


25  242  31 


58  173  00 


$2  179  605  00 


FINANCIAL  STATEMENTS  AND  REPORTS 


105 


Form  XLII. — Boston  City  Club — Comparative  Profit  and  Loss  Statement 
— Balance  Sheet — Comparative  Department  Operating  Statement. 

BOSTON   CITY   CLUB 


Exhibit  A 

Comparative  Profit  and  Loss  Statement 

For  the  Twelve  Months  Ended  December  31, 

,  1920  and  1919 

Income 

1920 

1919 

Gross  Profit  or  Loss  from  Departments — Exhibit  B: 

Restaurant. 

%        333  73 

$     2  003  55 

Bar 

•  1  739  01 

11  074  41 

Cigars 

14  052  54 

11  215  89 

Billiards  and  Pool 

638  60 

4  276  31 

Rooms 

16  469  40 

25  218  35 

Barber  Shop  and  Shines 

483  49 

2  118  63 

BowUng 

•  3  099  11 

•       184  84 

Total  Departmental  Gross  Profit 

S  27  139  64 

$  51  715  20 

Annual  Dues 

188  121  60 

187  841  34 

Interest  on  Bank  Balances,  etc. 

6  386  62 

2  710  31 

Discount 

4  962  07 

4  595  14 

Newspapers 

119  63 

51  84 

Laundry  Commissions 

343  99 

367  10 

House  Rent  Apportioned  to  Departments 

24  867  00 

Heating  Apportioned  to  Departments 

6  871  21 

Lighting  Apportioned  to  Departments 

6  142  35 

Total  Income  (Less  Direct  Departmental  Charges) 

$264  954   11 

$247  280  93 

General  Expenses 

House  Salaries  and  Wages 

S  86  749  58 

$  76  125  75 

Board  of  Employees 

3  976  97 

3  427  17 

House  Expense — General 

15  054  96 

13  547  68 

Depreciation  on  Furniture  and  Fixtures 

6  000  00 

6  000  00 

Fuel 

12  640  32 

9  586  63 

Mortgage  Interest 

16  079  76 

15  760  17 

Debenture  Interest 

10  233  37 

12  113  12 

Taxes 

16  966  40 

16  614  40 

Stationery  and  Printing 

4  464  96 

2  392  51 

Lighting 

9  484  15 

8  311  17 

Repairs  and  Renewals 

8  936  20 

6  689  59 

Telephone  (Net) 

1  247  28 

1  611  32 

Insurance 

1  500  00 

1  500  00 

Salary  of  Civic  Secretary 

3  008  52 

2  669  36 

Entertainment  Committee 

4  224  93 

2  895  33 

Art  and  Library  Committee 

2  187  55 

2  522  81 

Publicity  Committee 

4  496  68 

2  878  89 

House  Committee 

13  50 

35  55 

Forum  Committee 

777  13 

1  064  31 

Cash  Variations 

10  21 

4  34 

Total  General  Expenses 

$208  052  47 

$185  741  42 

Net  Profit  for  the  twelve  months  carried  to  Surplus  Ac- 

count— ^Exhibit  C 

$  56  901  64 

$  61  539  51 

'  Loss. 


106  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

BOSTON   CITY  CLUB 


De: 

] 

pai 

Exhibit  B 

aerating  S 

tatei 

nent 

1919 

Comparative  ] 

•tment  0] 

For  the  Twelve  Months  Ended  December  31 

,  1920  and  ] 

Restaurant 

1920 

1919 

Revenue:    From  Members 

$482  254  89 

$377  624  77 

Board  of  Employees 

37  332  81 
$519  587  70 

34 

638  50 

$412  263  27 

Expenses:  Supplies  Consumed 

$291 

311 

60 

$236  646  21 

Wages 

138 

041 

95 

112 

035  33 

Board  of  Employees 

31 

111 

02 

29 

233  81 

General 

58 

789 

40 

519  253  97 

36 

451  47 

414 

266  82 

Gross  Profit  or  Loss — Exhibit  A 

$ 

333  73. 

•$     2 

003  55 

Bar 

Revenue:    From  Members 

$ 

8  325  58 

$  44 

831  50 

Sale  of  Bottles,  etc. 

21  79 

56  42 

$ 

8  347  37 

$  44 

887  92 

Expenses:  Supplies  Consumed 

S 

3 

964 

14 

$  23  991   11 

Wages 

3 

837 

83 

5 

993  44 

Board  of  Employees 

258 

85 

560  95 

General 

2 

025 

56 

3 

020  37 

License 

- 

10  086  38 



247  64 

33 
$  11 

813  51 

Gross  Profit  or  Loss — Exhibit  A 

'i 

1  739  01 

074  41 

Cigars 

Revenue:    From  Members 

$ 

84  726  67 

$  75 

288  75 

Expenses:  Supplies  Consumed 

i  65  626  83 

$  61 

023  87 

Wages 

4 

147 

79 

2 

627  50 

General 

- 

899 

51 

$ 

70  674  13 
14  052  54 

421  49 

64 

072  86 

Gross  Profit — Exhibit  A 

$  11 

215  89 

Billiards  and  Pool 

Revenue:    From  Members 

$ 

11  668  82 

$   11 

271  34 

Expenses:  Wages 

s 

5 

021 

34 

$     4 

815  34 

Board  of  Employees 

545 

45 

477  10 

General 

5 

463 

43 

11  030  22 

1 

702  59 

6 

995  03 

Gross  Profit — Exhibit  A 

$ 

638  60 

$     4 

276  31 

Rooms 

Revenue:    From  Members 

$  48  133  80 

$  41 

302  75 

Expenses:  Wages 

s 

9 

897 

40 

$     8 

904  09 

Board  of  Employees 

943 

85 

542  85 

General 

— 

20 

823 

15 

r 

31  664  40 
16  469  40 

6 

637  46 

16 
$  25 

084  40 

Gross  Profit— Exhibit  A 

218  35 

Barber  Shop  and  Shines 

Revenue:    From  Members 

$ 

12  671  70 

$  11 

192  40 

Expenses:  Wages 

% 

9 

959 

96 

$     7 

700  95 

General 

— 

2 

228 

^ 

$" 

12  188  21 
483  49 

1 

372  82 

9 

073  77 

Gross  Profit — Exhibit  A 

$     2 

118  63 

Bowling 

Revenue:    From  Members 

$ 

4  519  78 

$     4 

551  78 

Expenses:  Wages 

s 

3 

830 

34 

$     3 

561  88 

General 

3 

788 

55 

7  618  89 

1 

174  74 

4 

736  62 

Gross  Loss — Exhibit  A 

*i_ 

3  099  11 

•$ 

184  84 

•  Loss. 

FINANCIAL  STATEMENTS  AND  REPORTS  107 

BOSTON   CITY   CLUB 

Exhibit  C 

Balance  Sheet 

As  at  December  31,  1920 

Assets 


Current  Assets : 

Cash  in  Banks  and  on  Hand 
Members'  Accounts  Receivable: 

House  Accounts 

Annual  Dues 

War  Tax 

Less — Reserves   for   Unpaid    Dues   and 

War  Tax 
Less — Reserve  for  Doubtful  Accounts 
Inventories  (Food,  Beverages,  Cigars,  etc.) 
Total  Current  Assets 

Investments: 

U.  S.  Liberty  Loan  Bonds 
U.  S.  Certificates  of  Indebtedness 
Total  Investments 

Capital  Assets: 

Real  Estate — Club  Building 
Furniture  and  Fixtures 
Linen,  Crockery,  Glass,  etc. 

Less — Reserves  for  Depreciation 
Total  Capital  Assets 

Redemption  Fund — Cash  in  Bank: 

Unredeemed  Debenture  Bonds — Due  1908  and  Interest  408  61 

Deferred  Assets : 

Unexpired  Insurance  6  874  61 

Total  Aaseta"  $917  990  73 


$  69  117 

79 

$80  287 

4  343 

356 

$84  987 

71 
35 
76 

82 

$4 

1 

700 
991 

11 
89 

6 

692 

00 

78  295 
22  608 

82 
86 

.) 

$170  022  47 

$  10  000  00 
75  000  00 

85  000  00 

$827  389  37 
53  963  23 
13  692  54 

$895  045  14 
239  360  00 

655  685  14 

108  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

BOSTON   CITY   CLUB 

Exhibit  C — Continued 

Balance  Sheet 

As  at  December  31,  1920 

Liabilities  and  Surpliia 

Current  Liabilities: 

Accounts  Payable  $  23  324  94 

Accrued  Interest  7  572  66 

Employees'  Christmas  Fund  14  235  77 

War  Tax  CoUections  10  425  73 

Uncalled-for  Wages  700  64 

Total  Current  Liabilities  $  56  259  74 

Prepaid  Annual  Dues  (To  December  31,  1921)  102  233  33 

Reserve  for  Debenture  Bonds  1908  and  Interest  408  61 

Capital  Liabilities: 

Mortgage  Note  $275  000  00 

Debenture  Bonds— Due  1923  113  300  00 

Debenture  Bonds— Due  1924  70  900  00 

Total  Capital  Liabilities  459  200  00 

Surplus: 

Balance,  January  1,  1920  $244  069  05 

Add — Net  Profit  for  the  year  as  per  Profit  and  Loss 

Account— Exhibit  A  S56  901  64 

Add— Initiation  Fees  Transferred  11  720  00 

$68  621  64 
Deduct — Reserve  for   Depreciation   on 

Real  Estate  $11  720  00 

Deduct — Net   Adjustment   of   Reserve 

for  Doubtful  Accounts  1  081  54     12  801  54 

Net  Additions  to  Surplus  55  820  10 

Balance— December  31,  1920  299  889  15 

Total  Liabilities  and  Surplus  $917  990  73 


FINANCIAL  STATEMENTS  AND  REPORTS 


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110  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

THE   MUTUAL   INSURANCE   COMPANY 

Statement  of  Income  for  the  Year  Ending  December  31,  1921 

Income  Credits: 

New  Premiums  $  2  711  699  85 

Renewal  Premiums  10  168  806  71 

Total  Premiums                                                ^  $12  340  506  56 

Consideration  for  Instalment  Contracts  139  116  85 

Shares  of  Surplus  Left  on  Deposit  12  973  60 

Interest  on  Mortgage  Loans  777  706  98 

Interest  and  Dividends  on  Stocks  and  Bonds  2  023  313  02 

Interest  on  Collateral  Loans  4  391  95 

Interest  on  Bank  Balances  25  498  24 

Interest  on  Policy  Loans  and  Premium  Notes  692  212  55 

Rents  125  142  72 

Discount  on  Endowment  Claims  paid  in  Advance  286  76 

Total  Income  S16  141  149  23 

Expenses  and  Charges: 

Death  Claims  $  3  562  483  37 

Endowment  Claims  850  477  26 

Surrender  Values  1   186  599  09 

Shares  of  Surplus  2  211   102  12 

Total  Payments  to  Policyholders  S  7  810  661  84 

Instalment  Claims  92  578  47 

Commissions,  Agency  and  Medical  Exp.  1  763  555  88 
Salaries   of   Officers   and   Home   Office   Employees   and 

Legal  Expense  323  998  33 

Insurance,  Taxes,  and  License  Fees  199  738  40 

Printing,  Stationery,  Furniture  and  Supplies  82  984  45 

Real  Estate  Taxes,  Expense  and  Rent  140  730  23 

Postage,    Telephone,    Telegraph,    Travel,  Express,    Ex-                                                « 

change  and  Advertising  43  025  21 

Miscellaneous,  Unclassified 25  516  55 

Total  Expenses  and  Charges  10  482  789  36 

Net  Income  S  5  658  359  87 


FINANCIAL  STATEMENTS  AND  REPORTS 
Form  XLIV.— National  Bank  Balance  Sheet. 
STATEMENT  OF  CONDITION 
March  4,  1918 


111 


Resources 
Loans  and  Discounts 
Overdrafts,  Secured  and  Unsecured 
U.  S.  Certificates  of  Indebtedness 
U.  S.  Liberty  Bonds 
Other  Bonds  and  Securities 
Stock  of  Federal  Reserve  Bank 
U.  S.  and  Other  Bonds  borrowed 
Bonds  Loaned 
Banking  House 
Due  from  Banks  and  Bankers 
Checks  and  Other  Cash  Items 
Exchanges  for  Clearing  House 
Cash  in  Vault  and  Net  Amount  clue  from  Federal  Reserve 

Bank 
Interest  Accrued 

Customers'  Obligations  %  Bank's  Contingent  Liability 
Customers'  Liability  under  Letters  of  Credit  and  Accept- 


Liabilities 
Capital  Stock  paid  in 
Surplus  Fund 

Undivided  Profits,  less  expenses  and  taxes  paid 
Reserved  for  Taxes,  etc. 
Dividends  unpaid 
Letters  of  Credit 

Acceptances  executed  for  Customers 
Deposits 

U.  S.  and  Other  Bonds  borrowed 
Unearned  Discount 

Rediscounts  with  Federal  Reserve  Bank 
Liabilities  other  than  those  above  stated 


$226  921 

469  12 

20 

685  07 

75  322 

500  00 

12  589 

957  51 

20  750 

931  50 

1  200 

000  00 

21  100 

000  00 

50 

000  00 

2  000 

000  00 

8  448 

141  53 

2  018 

509  26 

33  244 

835  05 

37  108 

823  24 

1  240 

456  35 

1  340 

000  00 

41  312  346  46 

$484  668  655  09 

$25  000  000  00 

15  000 

000  00 

6  269 

348  78 

1  669 

848  68 

23 

080  50 

14  892 

813  49 

26  602 

970  40 

356  446 

602  54 

21  100 

000  00 

1  336 

092  11 

14  704 

597  19 

1  623 

301  40 

$484  668  655  09 

112  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XLV. — A  Massachusetts  Trust  Company — Balance  Sheets. 

A   MASSACHUSETTS   TRUST   COMPANY 

Banking  Department 


Assets 
United  States  Bonds 
Massachusetts  Bonds 
Federal  Reserve  Bank  Stock 
Bonds  deposited  with  U.  S.  Treasurer 
Other  Stocks  and  Bonds 
Loans  on  Real  Estate 
Demand  Loans  with  Collateral 
Other  Demand  Loans 
Time  I-oans  with  Collateral 
Other  Time  Loans 
Acceptances 

Exchanges  for  Clearing  House 
Overdrafts 

Banking  House  and  Real  Estate 
Safe  Deposit  Vaults 

Customers'  Liability  on  Account  of  Notes  Rediscounted 
War  Savings,  Thrift  and  Revenue  Stamps 
Due  from  Federal  Reserve  Bank 
Due  from  Other  Banks 
Cash: 

Currency  and  Specie 

Other  Cash  Items 


$     3  069  984 

391 

450  000 

461  000 

11  837  612 

3  181   179 

13  987  681 
8  531  270 

14  723  395 
62  542  935 
10  225  796 

5  587  230 

9  722 

3  070  619 

276  918 

7  139  847 

5  507 

15  992  401 
7  804  292 

3  305  472 

407  901 
$172  611   149 


Liabilities 

Capital  Stock  $     7  000  000 

Surplus  Fund  9  000  000 

Undivided  Earnings,  less  Expenses,  Interest  and  Taxes  Paid  997  091 
Deposits: 
Demand: 

Subject  to  Check  105  524  708 

For  Payment  of  Coupons,  etc.  1  487  005 

Certificates  of  Deposit  7  110  993 

Certified  Checks  906  630 

Treasurer's  Checks  3  773  578 
Time: 

Certificates  of  Deposit  not  Payable  within  Thirty  Days  1  Oil  289 

Open  Accounts  not  Payable  within  Thirty  Days  1  805  418 

Due  to  Reserve  Banks  3  500  650 

Due  to  Other  Banks  6  773  644 

Dividends  Unpaid  77  775 

Bills  Payable,  including  Certificates  of  Deposit  Representing  Money  Borrowed  4  500  000 

Acceptances  10  831   735 

Reserved  for  Taxes  662  655 

Reserved  for  Depreciation  253  614 

Reserved  for  Interest  on  Certificates  of  Deposit  and  Open  Accounts  254  518 

Notes  Rediscounted  7  139  846 

$172  611   149 


FINANCIAL  STATEMENTS  AND  REPORTS  113 

Trust  Department 

Assets 

United  States  Bonds  S  2  436  117  89 

State  Bonds  669  680  04 

City,  County  and  Town  Bonds  4  052  793  25 

Railroad  Bonds  3  345  863  95 

Street  Railway  Bonds                                                                           "  374  877  12 

Miscellaneous  Bonds  6  722  093  84 

Bank  Stocks  3  057  026  04 

Railroad  Stocks  6   187  199  64 

Manufacturing  Stocks  1  865  081  68 

Miscellaneous  Stocks  17  970  074  11 

Loans  on  Real  Estate  6  628  466  08 

Loans  with  Collaterals  or  Sureties  88  445  25 

Notes  of  Individuals  22  920  50 

Notes  of  Corporations  404  403  54 

Real  Estate  Owned  2  455  817  92 

Real  Estate  Acquired  by  Foreclosure  21  999  31 

Other  Assets  370  408  16 

Deposits  in  Savings  Banks  374  798  49 

Deposits  in  National  Banks  or  Trust  Companies  1  627  723  20 

$58  675  790  01 

I^iabilities 

On  Trust  Accounts  $49  442  849  41 

Income  550  331  13 

As  Executors,  Administrators,  etc.  8  362  928  91 

Income  309  130  56 

Income  Investments  10  550  00 

$58  675  790  01 

Savings  Department 


Assets 
Investments  Authorized  for  Savings  Banks: 
Public  Funds 
Due  from  National  Banks  and  Trust  Companies 


Liabilities 


Deposits 

Interest,  Rents,  etc.,  less  Current  Expenses 


$ 

12  500  00 
724  00 

$ 

13  224  00 

$ 

12  958  00 
266  00 

s 

13  224  00 

114  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XL VI. — A  Massachusetts  Savings  Bank. 

A   MASSACHUSETTS   SAVINGS   BANK 
Statement  of  Condition,  October  31,  1919 

Assets 

Public  Funds,  Bonds  and  Notes  $10  409  692  39 

Railroad  Bonds  and  Notes  14  865  715  00 

Street  Railway  Bonds  919  000  00 

Boston  Terminal  Co.  Bonds  960  000  00 

American  Tel.  &  Tel.  Co.  Bonds  1  084  281  25 

Stocks  of  Banks  and  Trust  Companies  418  650  00 

372  Loans  on  Real  Estate  (average  of  each,  $59,462.13)  22  119  911  00 

250  Loans  on  Personal  Security  7  476  890  00 

Bankers'  Acceptances  196  948  12 
Bank  Building  and  Fixtures  (estimated  value,  $1,517,000;  assessed  value, 

$1,517,000)  570  000  00 

Real  Estate  by  Foreclosure,  etc.  (assessed  value,  $41,700)  31  690  18 

Deposits  in  National  Banks  or  Trust  Companies  1  518  628  65 

Cash  and  Cash  Items  69  416  74 

Total  Assets  $60  640  823  33 

Liabilities 

Due  Depositors  on  102,820  Accounts,  averaging  $548.87  each  $56  435  174  62 

(Accounts  opened  during  year,  8,918;  closed,  8,760;  increase,  158) 

Surplus: 

a.  Guaranty  Fund  (4.97%  of  deposits;  increase  during  year,  $3,020)  2  803  500  Oq 

b.  Profit  and  Loss  (decrease  during  year,  $44,100.86)  559  386  63 

Current  income: 

"aTlnterest  $707  319  21 

b.  Rent  25  833  33     $733  152  54 

Less — Current  expenses  and  rent  not  charged  off  74  211  46         658  941  08 

Deposits  or  Instalments  Received  on  Sales  of  Liberty  Loan  Bonda  183  821  00 

Total  Liabilities  $60  640  823  33 


FINANCIAL  STATEMENTS  AND  REPORTS 


115 


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116  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Form  XLVm. — Form  of  Audit  Report  Covering  Audit  of  a  Small  Retail 

Business. 

CHARLES  M.  FURBUSH  &  COMPANY 
Certified  Public  Accountants 

BOSTON 

NEW  YORK  89    STATE  STREET 

120  BROADWAY 

January  15,  1922 

The  Newton  Mercantile  Company 
260  Center  Street 
Boston,  Massachusetts 

Gentlemen : 

In  accordance  with  your  instructions,  we  have  made  an  examination  of 
your  books  and  accounts  as  of  December  31,  1921,  for  the  purpose  of  estab- 
lishing your  assets  and  liabilities  as  at  that  date,  and  of  preparing  a  state- 
ment of  your  financial  operations  for  the  year  ended  December  31,  1921. 

We  submit  the  following  statements,  which  are  commented  upon  below: 

Exhibit  A — Balance  Sheet,  December  31,  1921. 

Exhibit  B — Profit  and  Loss  Statement — Year  Ended  December  31,  1921. 

Exhibit  C — Estimated  Cash  Requirements — Six  Months  Ended  June 
31,  1922. 

Comments  on  the  Balance  Sheet 

We  have  verified  the  items  shown  on  the  appended  Balance  Sheet  (Exhibit 
A),  and  have  satisfied  ourselves  that  it  correctly  sets  forth  the  company's 
financial  condition  at  December  31,  1921. 

'  The  Accounts  Receivable  from  Employees  ($450.30)  represents  the  balances 
due  on  account  of  sales  by  the  company  to  Mr.  Morris  ($25.30)  and  Mr. 
Wallis  ($425.00). 

A  physical  inventory  of  merchandise  was  taken  as  of  December  31,  1921, 
and  conservatively  priced  at  cost  or  market,  whichever  was  lower. 

In  order  to  establish  the  true  liability  to  creditors  ($5,120.00)  we  found 
it  necessary  to  check  the  individual  accounts  with  creditors  with  their  in- 
voices and  statements,  which  had  been  erroneously  brought  onto  the  books 
less  the  cash  discounts. 

The  Notes  Payable  comprise  the  following: 

Date                            Payee                            Due  Rate  Amount 

12/1/21  Newton  Trust  Company  2/1/22  7%  $1  000  00 

11/10/21  T.  Lawrence  Mayer  1/10/22  6%  1  200  00 

9/1/21  Roderick  N.  Shaw  12/1/21  6%  500  00 

We  obtained  independent  verification  from  the  Newton  Trust  Company 
of  the  note  for  $1,000  held  by  them.  The  notes  due  Mr.  T.  Lawrence 
Mayor  and  Mr.  Roderick  N.  Shaw  are  as  shown  on  the  books,  and  have  not 
been  verified  independently. 


FINANCIAL  STATEMENTS  AND  REPORTS  117 

Comments  on  the  Operating  Statement 
Although  the  operations  for  the  year  have  resulted  in  a  profit  of  only 


.00,  it  must  be  borne  in  mind  that  the  past  year  was  the  first  year  of  the 
company's  existence,  that  business  conditions  in  general  during  the  period 
have  been  bad,  that  undoubtedly  losses  have  had  to  be  taken  on  goods  in 
stock  due  to  the  fall  in  prices  of  various  articles,  and  that  the  inventory  as 
of  December  31,  1921,  has  been  conservatively  priced. 
A  condensed  summary  of  the  operations  for  the  year  is  as  follows: 

Ratio  to 
Amount 

Net  Sales 
Cost  of  Sales 

Gross  Profit  on  Sales 

Operating  Expenses: 

Salaries 

Rent  (net) 

Discounts 

Other  Expenses 

Depreciation   of   Furniture  and   Fix- 
tures 
Net  Profit  from  Operations 
Interest  Charges  (net) 
Net  Profit  for  the  Year 

The  above  summary  shows  that  the  operating  overhead  for  the  past  year 
has  been  too  large  in  comparison  with  the  business  done,  although  it  has  been 
kept  as  low  as  possible  under  the  existing  conditions. 

Estimated  Cash  Requirements 
for  Six  Months  Ended  June  30,  1922 

We  have  discussed  with  Mr.  Shaw  the  outlook  of  the  business  for  the  next 
six  months  with  a  view  to  ascertaining  the  estimated  cash  requirements  of 
the  business  for  that  period,  and  we  submit,  in  Exhibit  C  appended,  a  state- 
ment setting  forth  these  requirements. 

This  estimate  is  based  upon  an  anticipated  business  of  approximately 
$25,000,  for  the  six  months'  period,  upon  purchases  being  kept  at  a  minimum, 
and  upon  every  possible  economy  in  operation. 

From  the  appended  statement  it  will  be  noted  that  credit  will  have  to  be 
obtained  in  the  amount  of  approximately  $6,500  in  order  to  carry  the  company 
through  the  winter  months.  This  may  be  accomplished  by  Bank  Loans  or 
by  purchases  on  credit  payable  during  the  six  months  following  June  30, 
1922.  So  far  as  current  indebtedness  is  concerned,  the  company  will  thus 
be  in  approximately  the  same  position  six  months  hence  as  it  was  on  Decem- 
ber 31,  1921. 


Amount 

Net  Sales 

$42  812  51 

100  00% 

30  281 

18 

70  73 

$12  531 

33 

29  27 

$5  173  00 

2  500  00 

1  835  62 

2  000  67 

153  08 

11  662 

37 

27  24 

$   868 

96 

2  03 

68 

96 

16 

$   800 

00 

1  87 

118  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

In  conclusion,  we  desire  to  express  our  appreciation  for  the  courtesy  and 
attention  extended  to  us  during  the  progress  of  our  work,  and  to  exjjress  our 
willingness  to  be  of  assistance  in  giving  you  any  further  information  you 
may  desire  regarding  this  report  and  the  operation  of  your  books  of  account. 

Respectfully  submitted, 

(Signed)     Chakles  M.  Furbush  &  Company, 
.     Certified  Public  Accountants. 


FINANCIAL  STATEMENTS  AND  REPORTS  119 

NEWTON  MERCANTILE  COMPANY 
Exhibit  A 
Balance  Sheet — December  31,  1921 

Assets 
Current  Assets: 
Cash: 
In  Bank 
Petty  Cash 
Change  Fund 
Accounts  Receivable: 

From  Customers — Schedule  I 
From  Employees 
Merchandise  Inventory 
Furniture  and  Fixtures  (at  cost) 

Deferred  Charges  to  Operations: 

Insurance  Prepaid 

Office  Supplies  on  Hand 
Total  Assets 

Liabilities,  Reserves,  and  Capital 

Current  Liabilities: 

Accounts  Payable— Schedule  II  $5  120  00 

Notes  Payable  2  700  00 

Accrued  Expenses  60  00 

Accrued  Interest  on  Notes  Payable  42  80     $  7  922  80 

Reserves : 


$     235  60 

125  10 

15  00 

$ 

375  70 

$4  238  60 

450  30 

4 

688  90 

8 

921  10 

$13  985  70 
586  20 

$ 

135  00 

— 

72  10 

207  10 
$14  779  00 

For  Loss  on  Bad  Debts  $     428  70 

For  Depreciation  on  Furniture  and  Fixtures  627  50         1  056  20 

Partners'  Capital: 
T.  Lawrence  Mayer: 

Investment  $2  500  00 

Add — 50%  of  profit  for  year 

(Exhibit  B)  400  00     $2  900  00 

Roderick  N.  Shaw: 

Investment  $2  500  00 

Add — 50%  of  profit  for  year 

(Exhibit  B)  400  00       2  900  00         5  800  00 

Total  Liabilities,  Reserves,  and  Capital  $14  779  00 


120 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 
NEWTON  MERCANTILE  COMPANY 


Exhibit  B 

Profit  and  Loss  Statement  for  Year  Ended  December  31,  1921 

Ratio  to 

Amount 

Net  Sales 

Net  Sales 

$42  812  51 

100.00% 

Deduct — Cost  of  Goods  Sold: 

Inventory,  January  1,  1921 

$3  042  08 

Net  Purchases  for  the  Year 

36 

160 

20 

Total  Cost  of  Goods 

$39  202  28 

Less — Inventory,  December  31, 

1921 

8 

921 

10 

30  281  18 
$12  531  33 

70.73 

Gross  Profit  on  Sales 

29.27 

Deduct — Operating  Expenses. 

Salaries 

$5 

173 

00 

Rent 

3 

200 

00 

Discounts 

1 

835 

62 

Store  Expenses 

1 

225 

50 

Advertising 

521 

80 

Stationery  and  Postage 

162 

75 

Insurance 

91 

62 

Depreciation  of  Furniture  and  Fix 

- 

tures 

153 

08 

12  363  37 

28.81 

Net  Profit  from  Operations 

$       167  96 

.46 

Add — Other  Income: 

Rental  of  Store  Space 

$ 

700 

00 

Interest  on  Bank  Balance 

8 

20 

Cash  Variance 

14 

92 

723  12 

1.69 

Total  Income 

$       891  08 

2.15 

Deduct — Other  Charges: 

Interest  on  Notes  Payable 
Net  Profit  for  the  Year 

Distri})ution  of  Profit 


91  08 


T.  Lawrence  Mayer 
Roderick  N.  Shaw 


50% 
50% 


.21 


$       800  00         1.94 


400  00 
400  00 


$       800  00 


FINANCIAL  STATEMENTS  AND  REPORTS  121 

NEWTON  MERCANTILE  COMPANY 

Exhibit  C 

Estimated  Cash  or  Credit  Requirements  for  Six  Months 

Ended  June  30,  1922 

Cash  on  Hand — January  1,  1922  $     235  60 

Estimated  Cash   Collections  from  Sales  and  Ac- 
counts Receivable  $18  000  00 
Estimated  Disbursements: 

Accounts  Payable  and  Accruals,  De-  ' 

cember  31,  1921  $5  222  80 

Note   Payable — Newton  Trust   Com- 
pany, due  February  1,  1922 

Purchases 

Salaries 

Advertising 

Rent 

Insurance 

Discounts 

Store  Expenses 

Stationery  and  Postage 

Interest  on  Notes  Payable 

Accounting  Services 
Excess  of  Estimated  Disbursements  over  Estimated  Receipts        $6  735  60 
Estimated  Cash  or  Credit  Requirements  for  the  Six  Months         $6  500  00 


1 

000 

00 

11 

817 

80 

2 

575 

00 

175 

00 

1 

250 

00 

50 

00 

670 

00 

500 

00 

100 

00 

75 

00 

300 

00  24  735  60 

122  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

UNIFORM  ACCOUNTING  SYSTEMS  FOR  TRADE  ASSO- 
CIATIONS 

Within  recent  years  a  large  number  of  trade  associations  have 
made  a  study  of  accounting  problems  peculiar  to  their  particular 
industry  for  the  purpose  of  working  out  uniform  systems  for  use 
by  the  members  of  the  association. 

The  following  is  a  representative  list  of  some  of  the  associa- 
tions which  have  prepared  and  adopted  uniform  systems: 

Steel  Barrel  Manufacturers  Association 

The  American  Boiler  Manufacturing  Association 

The  American  Face  Brick  Association 

The  National  Association  of  Box  Manufacturers 

Folding  Box  Manufacturers  National  Association 

The  National  Association  of  Brass  Manufacturers 

National  Canners  Association 

The  Casket  Manufacturers  Association  of  America 

Portland  Cement  Association 

American  Association  of  Pharmaceutical  Chemists 

National  Association  of  Finishers  of  Cotton  Fabrics 

The  National  Cloak,  Suit  &  Skirt  Manufacturers  Association 

National  Coal  Association 

National  Confectioners'  Association  of  the  United  States 

National  Association  of  Dyers  and  Cleaners 

Electrical  Manufacturers  Council 

National  Association  of  Electrical  Contractors  and  Dealers 

Biscuit  and  Cracker  Manufacturers  Association  of  the  United  States 

The  Steel  Founders'  Society  of  America 

American  Foundrymen's  Association 

National  Foundrymen's  Association 

National  Association  of  I^pholstered  Furniture  Manufacturers 

Heating  and  Piping  Contractors  National  Association 

National  Warm  Air  Heating  and  Ventilating  Association 

National  Association  of  Ice  Industries 

National  Implement  and  Vehicle  Association  of  the  United  States  of 

America 
Lal^el  Manufacturers  National  Association 
National  Association  of  Employing  Lithographers 
Lime  Association 

Southern  Sash,  Door  and  Millwork  Manufacturers  Association 
North  Carolina  Pine  Association 
West  Coast  Lumbermen's  Association 

California  White  and  Sugar  Pine  Manufacturing  Association 
National  Paint,  and  Oil  Varnish  Association 
American  Photo-Engravers  Association 


FINANCIAL  STATEMENTS  AND  REPORTS  123 

Writing  Paper  Manufacturers  Association 

Cover  Paper  Manufacturers  Association 

Newsprint  Service  Bureau 

United  Typothetac  of  America 

Atlantic  Coast  Shipbuilders'  Association 

Missouri  Valley  Association  Sand  and  Gravel  Producers 

National  Association  of  Sheet  and  Tin  Plate  Manufacturers 

The  Central  Association  of  Stove  Manufacturers 

National  Association  of  Stove  Manufacturers 

Truck  Owners  Conference,  Inc. 

National  Machine  Tool  Builders'  Association 

The  National  Tent  and  Awning  Manufacturers  Association 

American  Warehousemen's  Association 


PART  II 

CLASSIFIED  PROBLEMS  AND  EXERCISES 
IN 
THEORY  AND  PRACTICE 


SECTION  1 

CONSTRUCTION  OF  FINANCIAL  STATEMENTS 

Group  A — Single  Proprietorship  Statements 

Problem  1 


T.  L.  DAVIS 

Adjusted  Trial  Balance— June  30,  1922 

Cash  on  Hand  and  in  Bank 

$     2  540  00 

Notes  Receivable 

7  250  00 

Accounts  Receivable 

38  425  00 

Interest  Accrued  on  Notes  Receivable 

35  00 

Merchandise  Inventory,  June  30,  1921  (cost) 

165  900  00 

Land  (cost) 

12  000  00 

Store  Building  (book  value) 

50  000  00 

Store  Fixtures  (book  value) 

1  680  00 

Office  Equipment  (book  value) 

620  00 

Delivery  Equipment  (book  value) 

2  400  00 

Garage  Supplies  on  Hand 

140  00 

Store  and  Office  Supplies  Unused 

86  00 

Advertising  Matter  on  Hand 

675  00 

Insurance  Prepaid 

110  00 

Accounts  Payable 

$  52  300  00 

Notes  Payable 

75 

000  00 

Mortgage  Payable 

25 

000  00 

Interest  Accrued  on  Notes  Payable 

125  00 

Interest  Accrued  on  Mortgage  Payable 

1 

250  00 

Salaries  Accrued 

320  00 

Taxes  Accrued 

210  00 

T.  L.  Davis,  Capital 

125 

000  00 

T.  L.  Davis,  Current 

7  590  00 

Sales 

541 

250  00 

Sales  Returns  and  Allowances 

5  420  00 

Purchases 

478  000  00 

Purchase  Returns  and  Allowances 

2 

160  00 

127 

128  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Adjusted  Trial  Balance — June  30,  1922 — Continued 


Freight,  Express,  and  Cartage  In 

Salaries  and  Wages 

Advertising 

Heat  and  Light 

Printing  and  Stationery 

Postage  and  Supplies 

Telephone  and  Telegrams 

Taxes 

Insurance 

Freight  Outward 

Shipping  Supplies 

Automobile  Expenses 

Discounts  on  Purchases 

Discounts  on  Sales 

Interest  on  Notes  Receivable 

Interest  on  Notes  Payable 

Interest  on  Mortgage  Payable 

Depreciation  of  Building 

Maintenance  of  Building 

Depreciation  of  Equipment 

Loss  on  Bad  Debts 

Interest  on  Bank  Balances 

Red  Cross  Donation 

Collection  Expenses 

Sales  of  Boxes,  Paper,  and  Waste 

Inventory,  June  30,  1922 


8  340  00 
22  000  00 

4  210  00 
950  00 
142  00 
290  00 
175  00 

1  680  00 

1  120  00 
186  00 

92  00 

2  830  00 

2  190  00 

4  200  00 

1  250  00 

1  200  00 

320  00 

500  00 

875  00 

200  00 
495  00 


$  3  225  00 


140  00 


62  00 


74  00 


$826  116  00  $826  116  00 
$172  500  00 


Required : 

(a)  Balance  sheet  — statement  form,  with  current  assets  first 

(b)  Profit  and  loss  statement  showing  detailed  expenses 

Comments. — In  preparing  the  balance  sheet,  use  the  following  subheadings: 
Assets:  Liabilities: 

Current  Assets  Current  Liabilities 

Fixed  Assets  Fixed  Liabilities 

Deferred  Charges  to  Operations 
(See  Form  I) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  129 

It  has  been  Mr.  Davis's  practice  not  to  carry  any  reserves  on  his  books, 
but  to  credit  the  annual  depreciation  to  the  asset  accounts.  Such  ac- 
counts, therefore,  appear  in  the  trial  balance  at  the  book  or  depreciated 
value.     This  is  not  the  best  practice. 

In  setting  up  the  profit  and  loss  statement,  show  operating  expenses  in 
detail.  They  are  not  to  be  departmentized.  List  them  with  the  larger 
items  first.     (See  Form  II.) 

Special  attention  should  be  given  to  the  form  and  arrangement  of  the 
statements.     Observe  carefully  instructions  regarding: 

Punctuation  Capitalization 

Marginal  indentations  Underscoring 

Abbreviations  Proper  grouping  of  accounts 
Study  the  model  forms 


130  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  2 
W.  F.  ZIEGLER 


Adjusted  Trial  Balance— September  30,  1921 

Land  (cost) 

$  12  250  00 

Store  Building  (cost) 

45  000  00 

Reserve  for  Depreciation  of  Store  Building 

$     4  500  00 

Store  Equipment  (cost) 

.  15  200  00 

Reserve  for  Depreciation  of  Store 

Equipment 

4  560  00 

Office  Equipment  (cost) 

2  670  00 

Reserve  for  Depreciation  of  Office 

Equipment 

800  00 

Delivery  Equipment  (cost) 

10  500  00 

Reserve  for  Depreciation  of  Delivery  Equip- 

ment 

3  500  00 

Cash  in  Banks 

12  500  00 

Petty  Cash  Fund 

■      350  00 

Notes  Receivable 

39  250  00 

Notes  Receivable  Discounted 

7  500  00 

Interest  Accrued  on  Notes  Receivable 

110  00 

Accounts  Receivable 

120  310  00 

Reserve  for  Loss  on  Bad  Debts 

1  160  00 

Merchandise  Inventory,  9/30/20 

152  600  00 

Interest  Prepaid  on  Notes  Payable  Discounted 

540  00 

Insurance  Prepaid 

620  00 

Garage  Supplies  on  Hand 

762  00 

Office  Supplies  on  Hand 

249  00 

Advertising  Material  on  Hand 

2  231  00 

Interest  Collected  in  Advance  on  Notes  Re- 

ceivable 

75  00 

W.  F.  Ziegler,  Capital 

225  000  00 

W.  F.  Ziegler,  Current 

2  968  00 

Notes  Payable 

90  000  00 

Accounts  Payable 

58  700  00 

Mortgage  Payable 

25  000  00 

Salaries  and  Wages  Accrued 

700  00 

Taxes  Accrued 

2  310  00 

Sales 

650  125  00 

Sales  Returns  and  Allowances 

7  580  00 

Purchases 

462  350  00 

Purchase  Returns 

1  290  00 

Discounts  on  Purchases 

9  830  00 

Loss  on  Bad  Debts 

2  100  00 

Interest  on  Notes  Receivable 

320  00 

Interest  on  Notes  Payable 

4  500  00 

Interest  on  Mortgage  Payable 

1  500  00 

Freight  and  Express  In 

18  230  00 

CLASSIFIED   PROBLEMS  AND   EXERCISES  131 

Adjusted  Trial  Balance — September  30,  1921 — Continued 

Buying  and  Receiving  Expenses  $  24  460  00 

Selling  Expense  104  450  00 

Delivery  Expense  14  320  00 

Credit  and  Collection  Expense  4  230  00 

General  Administrative  Expense  15  280  00 

Maintenance  of  Real  Estate  8  260  00 


$1  085  370  00     $1  085  370  00 
Merchandise  Inventory,  September  30,  1921,  $168,250. 

Required : 

(a)  Balance  sheet — account  form,  with  current  assets  first 

(b)  Profit  and  loss  statement 

Comments. — Use  only  the  primary  subheadings  in  the  balance  sheet. 
(Form  I.)  The  various  reserves  should  be  shown  as  deductions  from  the 
correlative  asset  accounts.  (Form  VI.)  Notes  Receivable  Discounted 
should  be  shown  as  a  deduction  from  the  Notes  Receivable  account. 

Interest  Collected  in  Advance  on  Notes  Receivable  will  be  shown  as  a 
current  liability. 

Attention  is  called  to  the  fact  that  only  departmental  expense  accounts 
are  shown  in  the  trial  balance.  When  this  is  done,  it  is  usually  customary 
to  file  with  the  profit  and  loss  statement  a  summarized  analysis  of  the 
various  departmental  items,  setting  forth  the  details  of  each.  (See  Form 
XXVIII.) 

Give  careful  attention  to  the  technical  details  of  the  statements. 


132  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  3 

JAMES  A.  CROSBY 

Trial  Balance,  December  31,  1921 


Land  (cost) 

Wharves  and  Warehouses  (book  value) 

Office  Building  (book  value) 

Horses,  Wagons,  and  Equipment  (book 
value) 

Office  Equipment  (book  value) 

Cash 

Accounts  Receivable 

Notes  Receivable 

Office  Supplies  on  Hand 

Inventory,  December  31,  1920  (cost) 

Accounts  Payable 

Notes  Payable 

Sales 

Sales  Returns  and  Allowances 

Purchases 

Purchase  Returns  and  Allowances 

Wages  of  Yardmen  and  Helpers 

Stable  Expenses 

Selling  Expenses 

General  Administrative  Expenses 

Interest  on  Notes  Receivable 

Loss  on  Bad  Accounts  and  Notes  Re- 
ceivable 

Cash  Discounts  on  Purchases 

Cash  Discounts  on  Sales 

Interest  on  Notes  Payable 

James  A.  Crosby,  Capital 

James  A.  Crosby,  Current 


Inventor}',  December  31,  1921 


$   20 

750  00 

12 

625 

00 

9 

726  00 

4 

221 

40 

2 

169 

75 

6 

785 

90 

149 

678 

40 

2 

560 

00 

240 

00 

90 

284 

50 

$   52  869  36 

40  000  00 

734  432  46 

12 

738  60 

608 

205 

75 

14  768  91 

9 

689 

42 

6 

139 

60 

27 

196 

41 

46 

132 

90 

462  91 

1 

624 

00 

1  729  42 

960 

47 

400 

00 

170  842  10 

2 

977 

op 

$1  015 

105 

J6 

$1  015  105  16 

$72  237  60 

Required : 

(a)  Balance  sheet — report  form  with  fixed  assets  first 

(b)  Profit  and  loss  statement  with  detailed  expenses 

(c)  Mr.  Crosby's  business  is  a  growing  one,  and  he  desires 
to  expand  it  considerably.  With  this  idea  in  mind  he 
applies  at  his  bank  for  a  loan  of  $60,000  for  the  pur- 
chase of  a  lot  of  land  adjoining  his  present  property  and 


CLASSIFIED   PROBLEMS  AND   EXERCISES  133 

the  erection  of  new  structures.  He  submits  the  state- 
ments which  you  have  just  made  as  a  basis  for  the  loan. 
"Would  you,  as  credit  manager  of  the  bank,  approve  this 
loan?     Give  reasons  for  your  answer. 

Comments. — Mr.  Crosby  conducts  a  lumber  business  in  Boston.  The 
real  estate  consists  of  waterfront  property  and  includes  wharfage,  office 
building,  stable  and  sheds  for  the  storage  of  lumber. 

The  charges  for  freight  and  towing  are  added  to  the  invoice  cost  of  the 
lumber  when  it  is  received,  and  are  charged  directly  to  the  purchases 
account,  no  account  with  Freight  being  kept. 

The  yardmen  and  helpers  unload  and  pile  the  lumber  and  load  the  teams 
when  orders  are  filled.  No  basis  of  distribution  being  shown,  this  item 
will  be  carried  as  an  operating  expense.  Stable  expenses  include  stable 
supplies  used,  repairs  to  wagons,  fodder,  veterinary's  charges,  depreciation, 
and  wages  of  drivers. 

No  attempt  need  be  made  to  classify  the  operating  expenses.  List  them 
in  order  of  their  importance.     (See  Form  II.) 

For  the  purposes  of  this  problem  you  may  base  your  answer  to  (c)  on 
the  working  capital  ratio  or  the  ratio  between  current  assets  and  current 
liabilities.  The  ratio  of  current  assets  to  current  liabilities  should  be  at 
least  two  and  one-half  to  one  to  warrant  further  extension  of  credit.  The 
credit  man  would  consider  many  other  elements,  but  they  will  not  be  taken 
into  account  in  solving  this  problem. 


134  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  4 

E.  C.  EWING 

Trial  Balance,  December  31,  1920 

Land  (cost) 

Buildings  (cost) 

Horses  and  Wagons  (cost) 

Cash 

Accounts  Receivable 

Notes  Receivable 

Merchandise  on  Hand,  June  30,  1920  (cost) 

Accounts  Payable 

Notes  Payable 

E.  C.  Ewing,  Capital 

E.  C.  Ewing,  Drawings 

Sales 

Purchases 

Freight  Inward 

Selling  Expenses 

Delivery  Expenses 

General  Administrative  Expenses 

Insurance  Prepaid 

Interest  Charges 

Interest  Earnings 

Reserve  for  Depreciation  of  Buildings 

Reserve  for  Depreciation  of  Horses  and  Wagons 

Reserve  for  Loss  of  Bad  Debts 

Mercliandise  on  Hand,  December  31,  1920  (cost) 

Make  the  proper  provision  for  depreciation  of  buildings.  Esti- 
mated life  of  buildings,  twenty  years.  Charge  General  Admin- 
istrative Expense. 

Make  the  proper  provision  for  depreciation  of  horses  and 
wagons.  Estimated  life,  ten  years.  The  charge  is  to  be  divided 
equally  between  Freight  Inward  and  Delivery  Expenses. 

Mr.  Ewing  desires  to  set  up  a  further  reserve  for  losses  on 
account  of  bad  debts  amounting  to  one  per  cent  of  the  net  sales 
for  the  period. 

Interest  accrued  to  date  on  interest  bearing  notes  payable, 
$24.50. 

Portion  of  cost  of  insurance  policies  applicable  to  the  current 
period,  SG2.2o.     Charge  General  Administrative  Expense. 


$   3  000 

00 

15  400 

00 

2  950 

00 

3  469 

70 

4  697 

50 

1  150 

00 

3  674 

95 

$  4  627  70 

1  000  00 

20  600  00 

600 

00 

434 

50 

20  221  85 

11  261 

75 

234  15 

326 

30 

1  716 

40 

682 

36 

976 

84 

124 

50 

96 

87 

129  67 

3  080  00 

590  00 

78  30 

S50  561 

]67 

$50  561  67 
$2  892  60 

CLASSIFIED  PROBLEMS  AND  EXERCISES  135 

There  are  office  supplies  on  hand  which  cost  $34.  When 
acquired  these  suppUes  were  charged  to  General  Administrative 
Expense. 

Required : 

(a)  Adjusting  entries  (See  Form  IV) 

(b)  Balance  sheet — current  assets  first 

(c)  Profit  and  loss  statement 

(d)  The  estimated  life  of  the  building  is  20  years.  On  ap- 
proximately what  date  was  it  acquired? 

(e)  Compute: 

(1)  The  turnover  for  the  period 

(2)  Rate  per  cent  of  gross  profit  on  sales 

(3)  Rate  per  cent  of  gross  profit  on  cost  of  sales 

(4)  Rate  per  cent  of  net  profit  on  the  average  capital 
for  the  period. 

Comments. — Mr.  Ewing  conducts  a  small  retail  business.  Apparently 
he  neither  allows  cash  discounts  on  sales  nor  takes  advantage  of  cash  dis- 
counts offered  by  creditors;  or,  if  such  items  do  occur,  they  have  been 
treated  as  direct  deductions  from  Sales  and  Purchases,  respectively. 

For  convenience  in  making  up  the  profit  and  loss  statement  the  debit 
and  credit  footings  of  the  Purchases  and  Sales  accounts  are  shown  instead 
of  the  balances  of  these  accounts.  The  Purchases  account  has  been  charged 
with  gross  purchases  and  credited  with  purchase  returns  and  allowances. 
The  Sales  account  has  been  credited  with  gross  sales  and  debited  with  sales 
returns  and  allowances.  This  information  should  be  considered  when 
drawing  up  the  profit  and  loss  statement. 

In  the  adjusting  entries,  when  making  debits  or  credits  to  expense  ac- 
counts, care  should  be  taken  to  use  the  expense  accounts  already  on  the 
books  so  far  as  is  possible.  In  this  case,  general  expense  accounts  only 
are  kept  in  the  general  ledger;  consequently,  only  these  accounts  should 
be  used.  New  expense  or  income  accounts  should  be  opened  only  when 
adjusting  extraneous  items,  and  then  only  when  the  necessary  accounts 
are  not  already  on  the  books.  Of  course,  when  detailed  expense  accounts 
are  kept  in  the  general  ledger  they  should  be  used  in  making  the  adjusting 
entries. 

The  horses  and  wagons  are  used  for  both  hauling  inward  and  hauling 
outward.  Consequently,  expenses  for  repairs,  teamsters'  salaries,  board- 
ing, depreciation,  etc.,  should  be  divided  between  Hauling  Inward  and 
Delivery  Expense. 


136  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  B — Partnership  Statements 

Problem  5 

JONES  &  MARTIN 

Adjusted  Trial  Balance,  June  30,  1920 

Oflace  Furniture  (book  value)                         $  1  625  00 

Store  Furniture  and  Fixtures  (book  value)  3  970  00 

Machinery  (book  value)  2  260  00 

Cash  37  902  40 

Imprest  Cash  Fund  250  00 

Accounts  Receivable  167  842  60 

Amounts  Due  from  Consignees  28  249  00 

Notes  Receivable  66  209  40 

Interest  Accrued  on  Notes  Receivable  1  780  50 
Merchandise  on  Hand,  December  31,  1919 

(cost)  160  263  75 
Goods  in  Hands  of  Consignees  (cost)  20  189  50 
Insurance  Prepaid  2  940  83 
Stationery  on  Hand  540  00 
Accounts  Payable  $     160  290  40 
Notes  Payable  95  530  50 
Interest  Accrued  on  Notes  Payable  1  650  80 
Taxes  Accrued  780  00 
Sales  690  607  00 
Sales  Returns  and  Allowances  7  890  60 
Purchases  532  738  00 
Purchase  Returns  and  Allowances  8  921  20 
Freight  Inward  2  769  80 
Sales  of  Consigned  Goods  (gross  profit)  26  170  80 
Advertising  25  962  50 
Salaries  of  Salesmen  47  580  00 
Traveling  Expenses  48  260  25 
Delivery  Expense  5  445  70 
Miscellaneous  Store  Expense  6  699  22 
Office  Salaries  23  752  80 
Office  Supplies  Used  19  260  50 
Taxes  and  Insurance  5  326  70 
Altering    and    Trimming    Department    Ex- 
penses 5  740  90 
Commissions  24  236  50 
Interest  Earnings  5  290  00 
Interest  Charges  10  250  15 
Cash  Discoimts  on  Purchases  4  659  00 
Cash  Discounts  on  Sales  1  769  80 
E.  J.  Jones,  Capital  194  460  00 


CLASSIFIED  PROBLEMS  AND   EXERCISES  137 

Adjusted  Trial  Balance,  June  30,  1920 — Continued 

E.  J.  Jones,  Current  ^  19  763  00 

F.  C.  Martin,  Capital                             '                                                98  346  70 
F.  C.  Martin,  Current  5  237  00     

SI  280  706  40  81  286  706  40 

Merchandise  on  hand,  June  30,  1920  (cost),  $210,730. 

Required : 

(a)  Profit  and  loss  statement 

(b)  Balance  sheet — account  form   (current  assets  first) 

(c)  Write  up  the  closing  entries  up  to  and  including  the 
point  at  which  the  gross  trading  profit  is  closed  into  the 
Profit  and  Loss  account  (omit  explanations,  but  skip  a 
line  between  each  entry) 

(d)  On  July  15,  1920,  the  concern  applied  to  the  First 
National  Bank  for  a  loan  of  $50,000.  Would  you, 
as  credit  jnan  for  the  bank,  approve  this  loan,  basing 
your  decision  on  the  statements  just  made  up?  Give 
reasons  for  your  answer 

(e)  The  inventory  of  June  30,  1920,  is  stated  at  $210,730. 
Of  this  amount  $1,680  was  included  as  the  proper  pro- 
portional part  of  the  altering  and  trimming  depart- 
ment expenses  for  the  period.  Of  the  remaining 
$209,050  how  much  represents  the  invoice  cost  of  the 
proper  portion  of  freight  inward? 

Comments. — Messrs.  Jones  and  Martin  conduct  a  wholesale  millinery 
business.  They  rent  the  second  and  third  floors  of  a  large  building  in  the 
wholesale  district  of  Boston.  Profits  are  shared  in  the  proportion  of  two- 
thirds  to  Mr.  Jones  and  one-third  to  Mr.  Martin, 

In  this  line  of  business  there  are  two  busy  seasons,  from  January  15  to 
April  15,  and  from  August  1  to  October  1.  The  chances  of  goods  sud- 
denly becoming  more  or  less  unsalable  because  of  changing  styles  and  the 
possibility  of  purchasing  goods  which  will  not  appeal  to  the  buying  public 
are  large.  While  profits  are  large  they  must  necessarily  be  so,  for  the  busy 
seasons  must  pay  for  the  dull.  If  a  business  of  this  kind  is  well  conducted, 
when  the  semi-annual  statements  are  made  out,  the  stock  should  be  pretty 
well  reduced  and  the  business  of  the  past  season  cleaned  up  in  so  far  as 
possible.  This  is  essential  in  order  that  the  business  may  be  in  proper 
shape  to  start  upon  the  activities  of  the  approaching  season. 

The  concern  owns  several  sewing  machines  and  other  small  machines 
which  are  used  in  remodeling  and  trimming  hats,  either  to  suit  the  require- 


138  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

merits  of  purchasers  or  because  certain  styles  have  become  unsalable. 
This  work  is  carried  on  in  a  separate  room.  The  expenses  of  this  depart- 
ment, which  include  wages  of  operators,  supplies  used,  etc.,  are  charged 
to  an  account  called  "Altering  and  Trimming  Department  Expenses."  Inas- 
much as  these  expenses  affect  the  cost  of  the  goods  sold,  they  should  be 
included  in  that  part  of  the  profit  and  ^loss  statement  which  is  used  to 
arrive  at  the  gross  profit  on  sales.  Presumably  a  certain  proportion  of 
these  expenses  is  included  in  the  cost  of  goods  on  hand. 

The  concern  makes  a  practice  of  sending  out  certain  goods  on  consign- 
ment to  be  sold,  on  a  commission  basis,  by  the  consignees.  When  a  ship- 
ment of  this  kind  takes  place,  an  entry  is  made  debiting  "Goods  in  Hands 
of  Consignees"  and  crediting  "Purchases"  for  the  cost  of  the  goods  shipped 
When  the  goods  are  reported  sold,  an  entry  is  made  crediting  "Sales  of  Con- 
signed Goods"  for  the  selling  price,  charging  "Commission"  for  the  com- 
mission charged  by  the  consignee  and  "Amounts  Due  from  Consignees" 
for  the  difference  between  the  commission  charged  and  the  selling  price. 
Another  entry  is  then  made  debiting  "Sales  of  Consigned  Goods"  and 
crediting  "Goods  in  Hands  of  Consignees"  for  the  cost  of  the  goods  sold. 
Cash  received  from  consignees  is  credited  to  the  "Amounts  Due  from 
Consignees"  account  through  the  Cash  Book.  The  balance  of  the  "Sales 
of  Consigned  Goods"  account  thus  shows  the  gross  profit  on  sales  of  con- 
signed goods. 

When  making  up  the  profit  and  loss  statement  this  figure  should  appear 
just  below  and  as  an  addition  to  the  gross  profit  on  sales  made  by  the 
home  office  in  order  to  arrive  at  the  total  gross  profit  on  sales.  See  Form 
Vn  for  method  of  showing  division  of  the  net  profit  or  loss  for  the  period  in 
the  profit  and  loss  statement. 

In  preparing  the  balance  sheet  the  balance  of  Goods  in  Hands  of  Con- 
signees account  should  appear  just  below  Merchandise  on  Hand  under 
current  assets.  See  Form  VI  for  arrangement  of  Capital  section  of  balance 
sheet  for  a  partnership.  The  Commission  account  will  appear  as  an  operating 
expense  in  the  profit  and  loss  statement. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 

Problem  6 

MERVILLE  AND  MORROW 

Trial  Balance,  September  30,  1920 

(Before  adjusting) 

Cash  in  Bank  $     1  620  00 

Petty  Cash  Fund  100  00 

Accounts  Receivable  20  425  00 

Reserve  for  Loss  on  Bad  Accounts  S 

Delivery  Equipment  (cost)  4  200  00 

Reserve  for  Depreciation  of  Delivery  Equip- 


139 


272  no 


ment 

840  00 

Office  Equipment  (cost) 

3  500  00 

Reserve  for  Depreciation  of  Office  Equipment 

350  GO 

Merchandise  Inventory,  Septemljer  30,  1919 

8  106  00 

Acceptances  Receivable 

13  140  00 

Acceptances  Receivable  Discounted 

5  800  00 

Notes  Payable  Discounted 

9  000  CO 

E.  E.  Merville,  Loan 

5  000  00 

Accounts  Payable 

18  360  00 

Salaries  Accrued 

540  00 

E.  E.  Merville,  Capital 

10  000  00 

W.  C.  Morrow,  Capital 

8  000  00 

E.  E.  Merville,  Current 

1  850  00 

W.  C.  Morrow,  Current 

1  575  00 

Sales 

165  225  00 

Sales  Returns  and  Allowances 

3  304  00 

Purchases 

150  250  00 

Freight  and  Cartage  Inward 

2  820  00 

Purchase  Returns  and  Allowances 

2  165  00 

Liabilitj'  Insurance 

195  00 

Advertising 

924  50 

Office  Salaries 

3  820  00 

Postage 

190  00 

Salaries  of  Salesmen 

3  435  00 

Printing  and  Stationery 

125  00 

Rent 

3  500  00 

Heating  and  Lighting 

210  00 

Legal  Expense  (collections) 

50  00 

Insurance  on  Stock  and  Fixtures 

420  00 

Interest  on  Bank  Balance 

9  50 

Sales  Discounts 

2  602  70 

Purchase  Discounts 

2  910  25 

Interest  on  Notes  Payable 

105  00 

Telephone  and  Telegrams 

28  90 

2  55 

1  353  00 

550  00 

83  10 

$228  536  75 

$228  536  75 

140  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Trial  Balance,  September  30,  1920 — Continued 

Taxes  %  152  00 

Sales  of  Junk  $65  00 

Cash  Variance 

Delivery  Expense 

Traveling  Expenses 

Sundry  General  Expenses 

Merchandise  Inventory,  September  30,  1920  $9  875  00 

The  following  information  is  to  be  considered  in  making  such 
adjustments  in  the  above  accounts  as  may  be  necessary  as  of 
September  30,  1920: 

(1)  Oil,  tires,  and  other  automobile  supplies  on  hand,  $243.75. 

(2)  Unused  postage,  $16.10. 

(3)  Salaries  Accrued,  $438. 

(4)  Salaries  of  Salesmen  includes  advances  on  account  of 
October  salary,  $125. 

(5)  The  notes  payable  owing  at  bank  were  discounted  as 
follows:  September  1,  1920,  $5,000  payable  in  2  months,  dis- 
counted at  6%.  September  10,  1920,  $4,000  payable  in  30  days, 
discounted  at  6%. 

(6)  The  bank  statement  shows  interest  on  balances  not 
recorded,  $5.20. 

(7)  Goods  amounting  to  $1,200  received  from  Siegel  &  Com- 
pany on  September  30  have  been  taken  into  the  inventory  but 
do  not  appear  on  the  books. 

(8)  The  insurance  on  stock  and  fixtures  was  taken  out 
September  30,  1919,  for  a  period  of  three  years. 

(9)  Rent  is  $100  in  arrears. 

(10)  Adjust  the  reserve  for  loss  on  bad  accounts  to  an  amount 
equivalent  to  1H%  of  the  sum  due  from  customers. 

(11)  Provide  for  depreciation  as  follows:  Delivery  equip- 
ment 20%  per  annum.     Office  equipment  10%  per  annum. 

(12)  Profits  and  losses  are  to  be  shared  in  proportion  to  the 
original  investments  of  the  partners. 

Required : 

(a)  Adjusting  entries  with  complete  particulars 

(b)  Working  sheet  (Use  twelve  columns) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  141 

(c)  Balance  sheet — Account  form  (Form  IX) 

(d)  Profit    and    loss    statement   (list     operating     expenses 
separately). 

Comments.  — Assuming  that  September  30  is  the  close  of  the  fiscal  year, 
the  journal  entries  will  be  set  up  in  proper  form  and  posted  to  the  working 
sheet.     (See  Form  IV.) 

See  model  of  twelve-column  working  sheet  on  pages  22  and  23.     (Form  V.) 

Set  up  Interest  Prepaid  on  Notes  Payable  Discounted  account  in  adjust- 
ment (5).  Charge  this  account  and  credit  Interest  on  Notes  Payable  for 
the  interest  on  Notes  Payable  from  September  30  until  due  date  of  the 
notes. 

Cash  Variance  will  be  treated  as  an  expense  and  shown  as  "Other  Ex- 
penses" in  the  profit  and  loss  statement, 


Problem  7 

The  firm  of  William  Black  &  Company  conducts  a  trading 
business  at  500  Broadway,  Syracuse,  N.  Y.  The  cashier  has  had 
general  supervision  of  the  bookkeeping,  and  having  been  in  the 
employ  of  the  firm  a  long  time,  in  addition  to  the  above  duties,  he 
has  also  acted  in  the  capacity  of  confidential  secretary. 

On  the  evening  of  the  31st  of  October,  1918,  a  fire  was  dis- 
covered in  that  part  of  the  office  where  the  books  and  filing  system 
were  located.  The  actions  of  the  cashier  on  the  following  morning 
added  color  to  the  mysterious  conflagration.  An  investigation 
revealed  the  startling  fact  that  nearly  all  of  the  accounting  records 
were  destroyed.  The  cashier  found  it  convenient  to  visit  friends 
in  another  city.  The  members  of  the  firm  started  an  investi- 
gation. The  work  of  gathering  the  available  information  and 
preparing  such  exhibits  as  may  be  possible,  under  the  circum- 
stances, is  placed  in  your  hands. 

A  rough  copy  of  the  Balance  Sheet  of  December  31,  1917,  is 
found  in  a  dust-covered  pigeon-hole.  It  reveals  the  following: 
Capital  account,  $22,500;  real  estate,  $18,000;  store  fixtures, 
$1,500;  office  fixtures,  $1,200;  reserve  for  depreciation  of  store 
fixtures,  $75;  reserve  for  depreciation  of  office  fixtures,  $60;  de- 


142  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

livery  equipment,  $700;  reserve  for  depreciation  of  delivery  equip- 
ment, $70;  cash  balance,  $2,900;  merchandise  inventory,  $11,400; 
due  creditors,  $2,243.10;  due  from  customers,  $1,865;  notes 
receivable  on  hand,  $4,690;  notes  payable  outstanding,  $2,540; 
mortgage  payable,  $14,000;  interest  payable  accrued,  $700; 
wages  accrued,  $350;  insurance  prepaid,  $123.60;  advertising 
prepaid,  $200;  expense  accrued,  $40.50. 

From  various  sources,  the  following  information  as  to  the 
business  transacted  between  January  1,  1918,  and  October  31, 
1918,  was  assembled:  Purchases,  $26,500;  sales,  $31,900;  notes 
issued,  $18,500;  returns  to  creditors,  $180;  notes  receivable  from 
customers,  $27,500;  returns  by  customers,  $220.50;  interest  paid, 
$1,000;  wages  paid,  $7,290;  expenses  paid,  $536;  repairs  to  build- 
ing, $640;  due  from  customers  on  open  account,  $2,444.50;  due 
to  creditors,  $2,563.10;  notes  receivable  on  hand,  $974.85;  notes 
payable  outstanding,  $4,815;  cash  in  safe,  $176.92;  pass  book 
balance,  $3,716;  checks  outstanding,  $1,807.15. 

Merchandise  inventory,  October  31,  1918,  $16,800;  wages 
accrued,  $145;  interest  receivable  accrued,  $95;  interest  payable 
accrued,  $110;  advertising  prepaid,  $38;  insurance  prepaid,  $49.30. 

Increase  the  reserve  for  depreciation  of  store  and  office  furni- 
ture 7%;  delivery  equipment  10%;  and  create  a  reserve  for 
depreciation  of  real  estate  2%,  and  for  doubtful  accounts  3%  of 
the  customers'  balances. 

Required : 

A  working  sheet,  profit  and  loss  statement,  and  a  balance 
sheet  are  suggested  as  proper  means  of  reflecting  the  con- 
dition of  the  company's  affairs  as  at  the  last  date 
named.     You  will  set  them  up  in  proper  form. 

Comments. — This  problem  illustrates  a  typical  use  of  the  working  sheet 
where  it  becomes  necessary  not  only  to  make  adjustments  at  the  close  of 
the  period  but  also  to  record  current  transactions  which  are  missing  because 
of  the  destruction  of  the  records.  Such  items  must  be  gathered  from  var- 
ious .sources. 

In  this  problem  the  first  two  columns  of  the  working  sheet  may  be  used 
for  the  balance  sheet  as  of  December  31,  1917;  the  next  two  for  current 
transactions,  followed  by  two  each  for  the  trial  balance  as  at  the  time  of 
fire,  adjustments  as  at  October  31,  1918,  adjusted  trial  balance,  profit  and 
loss  items,  and  balance  sheet  items.  Such  an  arrangement  would  necessi- 
tate the  use  of  fourteen  columns.     The  same  purpose  would  be  served  by 


CLASSIFIED   PROBLEMS  AXD   EXERCISES  143 

using  one  set  of  columns  for  both  current  transactions  and  adjustments 
and  omitting  the  trial  balance  at  the  time  of  fire,  lender  this  plan  trading 
columns  may  be  used  if  desired  and  but  twelve  columns  would  be  required. 
The  latter  plan  is  recommended. 

From  the  information  available  it  will  be  necessary  to  find  by  deduction 
certain  cash  items  among  the  current  transactions.  For  instance,  the 
amount  due  from  customers  on  open  account  as  at  October  31,  1918,  is 
given  at  $2,444.50.  Presumably  this  is  the  correct  amount.  From  data 
available  the  balance  due  is  found  to  be  $6,044.50,  found  as  follows:  (Bal. 
Jan.  1,  $1,865  plus  Sales,  $31,900)  minus  (Notes  received,  $27,500  plus  returns, 
$220.50).  Therefore,  it  may  be  assumed  that  the  difference,  or  $3,600,  was 
received  in  cash,  for  which  an  entry  must  be  made  as  follows: 

Cash  $3  600 

Accounts  Receivable  $3  600 

It  will  be  necessary  to  handle  Accounts  Payable,  Notes  Payable,  Notes 
Receivable  and  Cash  in  a  similar  manner.  A  convenient  way  of  getting 
the  proper  balance  is  by  setting  up  skeleton  ledger  accounts 

A  final  analysis  of  the  Cash  account  will  develop  a  cashier's  shortage 
which  may  be  carried  as  an  asset  or  may  be  treated  as  a  loss,  depending  upon 
whether  the  cashier  is  bonded,  whether  there  is  a  possibility  of  the  shortage 
being  made  good,  or  whether  it  is  considered  as  a  total  loss.  In  any  event 
the  profit  and  loss  statement  should  reflect  the  net  profit  or  loss  to  date  of 
fire,  the  shortage  being  shown  at  the  end  of  the  statement  if  treated  as  a  loss. 

The  balance  sheet  will  be  set  up  in  the  usual  report  form  with  items 
properly  classified. 


144 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Problem  8 

TAYLOR,  WOOD  AND  COMPANY 

Trial  Balance,  September  30,  1920 


F.  H.  Taylor,  Capital 

C.  F.  Woods,  Capital 

L.  F.  Johnson,  Capital 

F.  C.  Taylor,  Drawing 

C.  F.  Wood,  Drawing 

L.  F.  Johnson,  Drawing 

Notes  Receivable 

Interest 

Accounts  Receivable 

Inventory,  September  1 

Shipping  Supplies 

OflSce  Supplies 

Insurance  Unexpired 

Horses  and  Wagons 

Furniture  and  Fixtures 

Real  Estate 

Notes  Payable 

Accounts  Payable 

Traveling  Expenses 

Rent 

Discount 

Freight  Inward 

Purchases 

Wamsutta  Mills  Stock 

Office  Salaries 

Shipping  Department  Salaries 

Dehvery  Expenses 

Sales 

Discounts  on  Purchases 

Discounts  on  Sales 

Collection  and  Exchange 

Returned  Purchases 

Returned  Sales 

Reserve  for  Bad  Debts 

Office  Expenses 

Cash 


The  above  accounts  are  representative  of  a  wholesale  dry  goods 
l)i]siness  conducted  by  three  partners  under  the  firm  name  of 
Taylor,  Wood  &  Co.  The  trial  balance  covers  a  period  of  one 
month. 


$16  578  04 

24  831  48 

2  602  03 

$100  00 

50 

00 

35  00 

1  000 

00 

35 

04 

10  740 

46 

23  525 

05 

196  50 

192 

75 

267 

50 

742 

50 

2  475 

00 

12  150 

00 

5  000  00 

7  181  84 

225 

00 

300  00 

3 

60 

47 

59 

7  597 

27 

1  150 

00 

655 

00 

65 

00 

111 

75 

10  593  69 

61  27 

112 

43 

7 

45 

297  84 

172 

20 

121  60 

15 

00 

5  365 

70 

$67  302 

22 

$67  302  79 

CLASSIFIED  PROBLEMS  AND   EXERCISES  145 

The  merchandise  on  hand  September  30  amounts  to  $22,372.76; 
furniture  and  fixtures  are  valued  at  $2,450;  horses  and  wagons, 
$735;  insurance  unexpired,  $260;  shipping  supplies  on  hand, 
$93.25;  office  supplies  on  hand,  $106.50;  real  estate,  $12,250; 
Wamsutta  Mills  stock,  $1,150. 

The  note  of  the  firm  for  $5,000  is  a  demand  note  issued 
September  26  and  bearing  interest  at  6%;  the  note  of  $1,000 
held  by  the  firm  was  received  on  September  9  and  bears  interest 
at  6%. 

The  real  estate  owned  by  the  firm  is  a  building  at  74  Chestnut 
St.,  which  cost  $12,000,  and  which  is  occupied  by  a  tenant.  At 
the  time  of  closing  the  books  on  August  31  the  value  of  the  prop- 
erty was  increased  to  $12,250;  on  that  date  rent  accrued  for 
August  of  $100  was  charged  to  the  Real  Estate  account;  Septem- 
ber 2,  $200  rent  was  received  from  the  tenant  for  August  and 
September,  which  was  credited  to  Real  Estate,  leaving  the  present 
balance  of  $12,150 

The  building  occupied  by  the  firm  for  business  purposes  is 
rented  at  $300  per  month. 

The  ten  shares  of  Wamsutta  Mills  stock  were  bought  on  August 
13  for  $105  per  share;  the  book  value  was  increased  August  31, 
at  the  time  of  closing  the  books,  to  $1,150.  No  dividend  has 
been  received  on  the  stock. 

One  per  cent  of  the  gross  sales  is  to  be  set  aside  as  a  reserve 
for  bad  debts. 

By  the  terms  of  the  partnership  agreement,  6%  interest  is  to 
be  allowed  each  partner  on  his  capital  account.  Taylor  is  allowed 
a  monthly  salary  of  $150;  Wood,  $200;  Johnson,  $225.  The 
salary  of  each  partner  for  September  has  been  credited  to  the 
respective  drawing  accounts. 

An  analysis  of  the  Interest  account  shows  interest  accrued 
on  notes  receivable  as  of  August  31,  $12.75;  interest  accrued  on 
notes  payable,  $166.67;  interest  paid  during  September,  $208.33; 
interest  received,  $19.37. 

Required : 

(a)  Adjusting  entries 

(b)  Profit  and  loss  statement  for  September 

(c)  Balance  sheet — account  form 

(d)  Closing  entries — skeleton  form. 


146  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — The  adjusting  entries  in  the  proljlem  need  careful  attention. 
First,  record  tlic  accrued  interest  on  notes  receivaljle  and  notes  payable 
from  date  of  each  to  September  30. 

The  real  estate  should  be  carried  at  cost.  The  estimated  increase  in 
value  should  not  appear  on  the  books  as  a  profit  until  the  property  has  been 
disposed  of  at  a  profit.  It  will  be  necessary,  therefore,  to  remove  from  this 
account  the  appreciation  of  $250.  Charge  this  item  to  the  partners  and 
credit  the  Real  Estate  account.  The  rent  items  will  also  be  removed  from 
the  Real  Estate  account  and  carried  to  the  proper  accounts. 

In  like  manner,  the  appreciation  on  Wamsutta  Mills  Stock  will  be  charged 
to  the  partners  and  credited  to  the  stock  account.  Fluctuations  in  market 
value  of  stocks  should  not  be  reflected  in  the  ledger  accounts.  The  profit 
or  loss  on  the  stock  will  be  taken  when  the  stock  is  disposed  of. 

Figure  the  interest  on  the  partners'  capital  for  one  month  at  6%  on  the 
adjusted  figures,  after  taking  into  consideration  the  above  items. 

Salary  accounts  will  be  kept  with  partners.  Therefore,  September  salary 
should  be  removed  from  the  Drawing  accounts,  and  transferred  to  the  Salary 
accounts. 

An  entry  will  be  made  to  open  detailed  interest  accounts  as  per  analysis, 
and  to  close  out  the  general  interest  account  charged  with  $35.04. 
See  Form  III  for  method  of  setting  up  closing  journal  entries. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 
Problem  9 


147 


Alexander,  Brown,  and  Clark  entered  into  a  partnership 
agreement  on  January  1,  1920,  their  business  being  the  operating 
of  a  dry  goods  store  in  Galesburg,  Illinois.  At  December  31, 
1920,  the  trial  balance  of  the  partnership,  before  making  any 
adjustments,  was  as  follows: 


Alexander,  Capital 

Brown,  Capital 

Clark,  Capital 

Merchandise  Inventory,  1/1/20 

Accounts  Receivable,  Customers 

Accounts  Receivable,  Employees 

Cash  in  Bank 

Cash  on  Hand 

Notes  Payable 

Accounts  Payable 

Sales 

Purchases,  including  Freight 

Salaries  and  Store  Expenses 

Bad  Debts  Written  Off 

Interest  Paid  on  Notes  Payable 

Alexander,  Salary  Paid 

Brown,  Salary  Paid 

Clark,  Salary  Paid 


$50  000  00 
30  000  00 
20  000  00 


$125  000  00 

75  000  00 

3  000  00 

5  000  00 

1  000  00 


323  000  00 

125  000  00 

2  500  00 

6  000  00 

2  500  00 
4  000  00 

3  000  00 


60  000  00 

15  000  00 

500  000  00 


$675  000  00  $675  000  00 


The  following  adjustments  are  to  be  made: 

(1)  Interest  at  6%  per  annum  charged  or  credited  to  partners. 
Accept  the  amounts  in  capital  accounts  as  being  capital  at  Jan- 
uary 1,  1920. 

(2)  Mr.  Alexander  owns  the  store  and  will  be  credited  in 
monthly  installments  on  firet  of  each  month  (in  advance)  with 
$10,000  for  rent.  Interest  at  6%  per  annum  to  be  allowed  on 
these  credits. 

(3)  Of  the  interest  paid  on  notes  payable,  $2,000  applies  to 
period  subsequent  to  December  31,  1920. 

(4)  Provide  for  unpaid  taxes,  $1,000;  and  for  unpaid  wages, 
$1,500. 

(5)  A  reserve  of  $1,500  is  necessary  for  bad  and  doubtful 
accounts. 

(6)  The  inventory  at  December  31, 1920,  is  valued  at  $150,000. 


148  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

(7)  Of  the  profits,  if  any,  after  giving  effect  to  these  adjust- 
ments, credit  10%  to  Bonus  to  Department  Managers  and  Sales- 
men. 

The  profits  or  losses  are  divisible  in  the  following  proportions: 
Alexander,  40%;  Brown,  333^%;  Clark,  26%%. 

Required : 

(a)  Balance  sheet  as  at  December  31,  1920 

(b)  Profit  and  loss  statement  for  the  year  1920 

(c)  Statement  of  each    partner's  capital  account,  showing 
transactions  for  the  year. 

(Adapted  from  Illinois  C.  P.  A.  Examination) 

Comments. — The  adjustments  in  this  problem  need  careful  attention. 
In  (1)  the  item  "Interest  at  6%  per  annum  charged  or  credited  to  partners" 
may  be  construed  to  mean  that  the  interest  on  capital  investment  is  not  to 
be  passed  through  the  profit  and  loss  account,  but  is  to  be  adjusted  directly 
through  the  capital  accounts.  In  order  to  do  this  it  will  be  necessary  to 
find  each  partner's  share  of  the  interest  charge  on  partner's  capital  accord- 
ing to  the  ratio  in  which  profits  are  shared.  If  the  partner's  proportion  of 
the  interest  charge  is  greater  than  the  amount  of  interest  due  him  on  his 
capital  investment,  his  capital  account  will  be  charged  with  the  difference; 
if  less,  his  capital  account  will  be  credited.  Under  this  plan  the  aggregate 
net  charges  to  certain  partners  will  just  equal  the  aggregate  credits  to  others 
and  will  form  the  basis  of  the  adjusting  entry  referred  to  above. 

In  (2)  find  the  aggregate  time  an  installment  of  $10,000  would  be  on  inter- 
est to  be  equivalent  to  $10,000  payable  monthly.  For  instance,  the  first 
installment  would  bear  interest  for  12  months,  the  second  for  11  months,  etc. 

In  (7)  Bonus  to  Department  Managers  and  Salesmen  is  in  the  nature  of  a 
lial)ihty,  and  if  there  should  be  any  such  item  in  this  statement  it  would 
appear  in  the  balance  sheet  as  a  liability  in  the  same  manner  as  wages 
accrued. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  149 

Group  C — Corporation  Statements 
Problem  10 

From  the  following  accounts,  prepare  a  balance  sheet  that 
will  exhibit  a  correct  view  of  the  net  worth: 

Accounts  Receivable  $  50  000 

Accounts  Payable  20  000 

Bonds  Outstanding  100  000 

Cash  on  Hand  100  000 

Common  Stock  Outstanding  100  000 

Dividends  on  Preferred  Stock  Due  and  Unpaid  10  000 

Inventories  at  Cost  10  000 

Notes  Receivable                          '  5  000 

Notes  Payable  213  000 

Plant  Account  (cost)  200  000 

Preferred  Stock  Outstanding                                                          •  100  000 

Profit  and  Loss  Account  (debit  balance)  126  000 

Reserve  for  Depreciation  30  000 

Reserve  for  Federal  Taxes  2  000 

Reserve  for  Shrinkage  of  Inventory  Values  5  000 

Reserve  for  Possible  Loss  in  Accounts  Receivable  1  000 

Reserve  for  Bonds  past  due  10  000 

Treasury  Stock  (common)  50  000 

Treasury  Stock  (preferred)  50  000 

Required: 

Balance  sheet — Report  form — Fixed  assets  first. 

(From  North  Carolina  C.  P.  A.  Examination) 

Comments. — This  problem  is  for  the  purpose  of  affording  practice  in  the 

arrangement  of  a  corporate  balance  sheet.  Reference  is  made  to  Forms 
IX  and  XII  for  suggestions  regarding  form  and  arrangement. 

The  capital  items  should  be  shown  as  the  last  group  on  the  liabliity  side, 

and  it  is  recommended  that  the  Treasury  Stock  be  shown  as  a  deduction 
from  the  stock  outstanding. 


150  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  11 
THE  SOMERTON  MANUFACTURING  COMPANY 
Trial  Balance,  December  31,  1921    • 


Cash  in  Bank 

Imprest  Cash  Fund 

Merchandise  Inventory,  January  1,  1921 

Furniture  and  Equipment 

Consigned  Goods  Account 

Ajax  Mining  Stock,  3,000  shares,  par  $100 

Premium  Paid  for  Leasehold 

Accounts  Receivable 

Accounts  Payable 

Notes  Payable 

Purchases 

Sales  Returns  and  Allowances 

Sales 

Wages 

Rent 

Taxes 

Factory  Expenses 

Office  Salaries 

Sundry  Expenses 

Income  from  Investments 

Capital  Stock 

Surplus,  January  1,  1920 


50  000  00 
350  00 
95  760  00 
18  200  00 
12  750  00 

300  000  00 
25  000  00 

275  460  00 


620  275  00 
4  896  00 

110  650  00 
12  000  00 

3  865  00 
45  385  00 

9  575  00 
22  860  00 


65  290  00 
20  000  00 


975  240  00 


15  300  00 
400  000  00 

137  196  00 

$1  613  026  00  $1  613  026  00 


The  above  trial  balance  is  taken  at  the  close  of  the  fiscal  year 
before  adjusting  and  closing  entries  have  been  made.  The 
following  items  must  be  taken  into  consideration  in  making  up 
the  financial  statements: 

(a)  Leasehold  was  acquired  January  1,  1921,  and  expires 
December  31,  1930. 

(b)  Goods  on  hand,  December  31,  1921,  S95,900.' 

(c)  Provision  is  made  for  discounts  and  bad  debts  to  the  extent 
of  5%  of  the  balance  of  customers'  accounts  at  the  close  of  the 
period. 

(d)  The  notes  payable  are  held  by  the  bank.  They  were  dis- 
counted on  December  1,  1921,  and  fall  due  March  1,  1922.  The 
dis(;onnt  at  6%  was  charged  to  Sundry  Expenses  when  the  notes 
were  negotiated. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  151 

(e)  A  dividend  of  6%  was  declared  on  December  20,  1921,  on 
the  Ajax  stock,  payable  January  10,  1922. 

(f)  Provide  for  depreciation  of  furniture  and  equipment  at 
10%. 

(g)  Wages  accrued  since  the  last  pay  day  amount  to  $1,200 
on  December  31,  1921. 

(h)  The  directors  have  declared  a  10%  dividend  payable 
to  all  stockholders  of  record  on  January  15,  1922. 

Required. 

(a)  Necessary  adjusting  entries 

(b)  Balance  sheet  as  of  December  31,  1921 — report  form 

(c)  Profit  and  loss  statement  for  year  ending  December  31, 
1921. 

Comments. — Consigned  Goods  account  consists  of  goods  consigned  at 
cost  to  selling  agents  in  New  York  City  for  sale  on  a  commission  basis. 
The  cost  of  these  goods  amounted  to  $12,000,  and  charges  on  same  have 
been  paid  to  the  amount  of  $750.  No  report  has  been  received  on  these 
goods. 

The  Leasehold  Premium  must  be  written  off  over  the  life  of  the  lease. 

This  company  is  engaged  in  the  production  of  an  assembled  machine. 
They  purchase  all  their  parts  from  other  manufacturers  and  assemble  them 
for  the  market.  The  cost  of  the  sales  will  therefore  be  represented  by  the 
Inventory,  January  1,  1921,  plus  Purchases,  Wages,  Rent,  Taxes,  and  Fac- 
tory Expenses,  less  Inventory,  December  31,  1921. 


Problem  12 

The  directors  of  a  manufacturing  company  submit  the  follow- 
ing trial  balance  to  an  accountant,  requesting  that  he  inform 
them  as  to  what  percentage  of  dividend  they  may  safely  declare 
out  of  the  year's  net  income: 

Trial  Balance— December  31,  1922 

Real  Estate  .  $94  000  00 

Plant  and  Machinery  80  000  00 

Patents  and  Good-Will  160  000  00 


152 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Inventory,  January  1,  1922 

Purchases 

Labor 

Coal 

Salaries,  General 

Salaries,  Management 

Insurance 

Repairs 

Claims  and  Allowances 

Prepaid  Freight  (included  in  invoice  price) 

Interest  and  Discount 

Cash 

Investments 

Miscellaneous  Expenses 

Accounts  Receivable 

Deficit,  January  1,  1922 

Capital  Stock 

Sales 

Accounts  Payable 

Notes  Payable 

Dividends  on  Stocks  Owned 

Rentals 


$58  000  00 
165  000  00 
176  000  00 

12  000  00 

22  000  00 

10  000  00 

1  750  00 

2  000  00 
12  500  00 

3  000  00 

1  500  00 
16  000  00 
31  000  00 

8  600  00 
84  000  00 

2  000  00 

$422  000  00 

438  350  00 

20  000  00 

52  000  00 

3  000  00 

4  000  00 

$939  350  00     $939  350  00 


Inventory,  December  31,  1921,  $53,000.  Four  employees,  A, 
B,  C,  and  D,  receive  as  additional  salaries  the  following  per- 
centages of  the  earnings  measured  by  the  net  income:  A,  25%; 
B,  12>^%;  C,  6><%;  and  D,  6/4%- 

Depreciation  for  the  period  of  6  months  ending  December 
31,  1921,  was  not  put  upon  the  books.  No  additions  have  been 
made  to  the  fixed  assets  within  a  year. 

Estimated  discounts  on  the  Accounts  Receivable  and  Payable 
were  not  put  upon  the  books  January  1,  1922.  These  were, 
respectively,  $400  and  $750. 

The  last  two  semi-annual  dividends  on  preferred  stock  are 
unpaid. 

Required : 

(a)  Balance  sheet  as  of  December  31,  1916 

(b)  Profit  and  loss  statement  for  the  year 

(c)  What  ratio  of  dividend  would  you  recommend? 

{From  New  York  C.  P.  A.  Examination) 

Comments. — This  problem  presents  a  few  points  somewhat  out  of  the 
ordinary  and  should  therefore  be  given  careful  study.     While  the  statement 


CLASSIFIED   PROBLEMS  AND   EXERCISES 


153 


is  made  that  the  last  two  semi-annual  dividends  on  preferred  stock  are  un- 
paid there  is  nothing  in  the  problem  to  indicate  how  much  of  the  capital 
stock  is  preferred  stock.  If  the  financial  statement  at  the  close  of  the  period 
should  show  a  surplus,  it  would  be  well  to  indicate  the  portion  of  such  surplus 
applicable  to  preferred  dividends  before  any  other  dividend  could  be  declared. 
This  cannot  be  done  in  this  case. 

As  there  is  no  distinction  made  between  raw  materials  and  finished  goods  in 
the  inventory,  the  cost  of  sales  may  be  represented  by  the  inventory, 
Janupry  1  plus  purchases  less  inventory,  December  31,  and  for  the  purpose 
of  this  problem,  labor,  coal,  repairs,  etc.,  may  be  treated  as  operating  ex- 
penses. After  finding  the  net  profit  an  additional  charge  will  be  made  for 
the  bonus  to  A,  B,  C,  and  D.  This  raay  be  deducted  at  the  end  of  the  profit 
and  loss  statement. 

The  depreciation  for  the  six  months  prior  to  December  31,  1921,  should 
be  brought  on  at  a  normal  rate  and  charged  to  the  Deficit,  January  1,  1922. 
Current  depreciation  should  also  be  provided  for. 

Estimated  discounts  on  the  Accounts  Receivable  and  Payable  were  not 
put  upon  the  books  January  1,  1922.  While  sales  discounts  are  sometimes 
set  up  by  charging  anticipated  Sales  Discounts  and  crediting  a  Reserve  for 
Sales  Discounts,  it  is  inadvisable  to  anticipate  purchase  discounts  as  this 
has  the  effect  of  anticipating  profits.  As  accounts  receivable  are  quite  large 
some  provision  should  be  made  for  anticipated  loss  on  bad  debts.  The 
item  Prepaid  Freight  represents  the  amount  due  from  customers  for  prepaid 
freight. 


Problem  13 

The  trial  balance  of  the  A.  B.  Co.,  on  January  1,  1912,  appears 
as  follows: 


Cash  $50  100 

Accts.  Receivable,  gross  400  000 

Notes  Receivable  30  000 
Merchandise  Inventory, 

1/1/11,  gross  240  000 
Merchandise  Purchases, 

to  1/1/12  1  250  000 

Prepaid  Interest,  1/1/11  12  500 

Interest,  paid  to  1/1/12  36  000 

Expenses,  paid  to  1/1/12  156  000 


Reserve  for  Disc.  Accts., 
Receivable,  1/1/11 

Reserve  for  Disc.  Mdse., 
Invty.,  1/1/11 

Accts.  Payable 

Notes  Payable 

Sales 

Purchase  Discounts,  Col- 
lected on  Settlements 
with  Creditors 


$12  000 

12  000 

90  000 

600  000 

1  500  000 


59  500 


154 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Reserve  for  Disc.  Aocts. 

Payable,  1/1/11 

$  4  000 

Bad  debts,  Charged  off 

to  1/1/12 

2  500 

Returned  Sales  Custom- 

ers 

100  000 

Salaries 

20  000 

Taxes 

5  000 

Plant 

250  000 

Discounts  Allowed  Cus- 

tomers 

51  900 

$2 

608  000 

Reserve  for  Bad  Debts, 

1/1/11 

Mdse.  Returned  to  Cred- 
itors, to  1/1/12 

Collected  on  Accts. 
Charged  to  P.  &  L. 
in  1910 

Credit  Insurance,  re- 
ceived on  1910  Losses 

Profit  A  Loss,  1/1/11 

Capital  Stock 


$  3  000 


50  000 


500 

1  000 
55  000 
225  OOP 
$2  608  000 


The  following  information  is  stated: 

Accounts  Payable,  January  1,  1911,  Gross,  $80,000. 

Accounts  Receivable,  January  1,  1911,  Gross,  $300,000. 

Notes  Payable,  January  1,  1911,  $500,000.  Interest  paid  at 
5%to  July  1,  1911. 

On  July  1,  1911,  $500,000  is  renewed  at  6%  for  1  year  and 
$100,000  additional  is  borrowed  at  same  rate  for  one  year. 

Inventory,  January  1,  1912,  $320,000  Gross 

Goods  bought  on  terms  of  5%  30  days. 

Goods  sold  on  terms  of  4%  30  days. 

Reserve  for  Bad  Debts,  January  1,  1912,  to  be  1%  on  Gross 
Accounts  Receivable 

Required : 

(a)  Necessary  adjusting  entries 

(b)  Profit  and  loss  statement 

(c)  Balance  sheet. 

{From  Massachusetts  C.  P.  A.  Examination) 

Comments. — This  problem  requires  careful  analytical  reasoning.  It 
is  evident  that  the  Reserve  for  Discount  Accounts  Receivable  for  $12,000 
shown  in  the  trial  balance  represents  the  amount  set  up  January  1, 
1911,  being  4%  of  $300,000  accounts  receivable  on  hand  at  that  time.  This 
has  remained  untouched  throughout  the  year,  the  discounts  allowed  cus- 
tomers being  charged  to  the  account  Discounts  Allowed  Customers,  $51,900. 
An  entry  should  be  made  closing  the  reserve  against  the  Discounts  Allowed 
Customers.  A  new  reserve  will  then  be  created  for  Discounts  on  Accounts 
Receivable  as  of  January  1,  1912  (4%  of  $400,000). 

The  inventory  of  merchandise  has  been  taken  at  invoice  price.  As  the 
actual  cost  was  5%  less,  a  reserve  was  set  up  January  1,  1911,  for  this  amount 
(5%  of  $240,000).  This  reserve  should  now  be  closed  out,  bringing  the 
inventory  down  to  cost.  An  entr}'  will  then  be  made  setting  up  the  reserve 
as  of  January  1,  1912  (5%  of  $320,000). 


CLASSIFIED   PROBLEMS  AND   EXERCISES  155 

Purchase  discounts  have  been  handled  in  hke  manner.  At  the  beginning 
of  the  year,  Reserve  for  Discount  Accounts  Payable  was  charged  with  5%  of 
$80,000.  The  discounts  taken  during  the  year  have  been  credited  to  Purchase 
Discounts  instead  of  to  the  reserve  account.  Charge  Purchase  Discounts 
and  credit  the  reserve  account. 

Bad  debts  charged  off  during  the  year  should  be  charged  to  the  reserve 
account.  Make  proper  entry  to  adjust  and  then  set  up  reserve  as  of  Jan- 
uary 1,  1912,  to  bring  reserve  up  to  1%  of  accounts  receivable  as  shown  in 
trial  balance. 

Interest  is  paid  in  advance  to  July  1,  1912,  in  the  sum  of  $18,000. 
It  will,  therefore,  be  necessary  to  adjust  Prepaid  Interest  account  so  as  to 
show  this  amount. 

The  statements  will  be  set  up  in  the  usual  form  except  that  discounts 
allowed  customers  is  deducted  from  sales  and  purchase  discounts  from  pur- 
chases, instead  of  showing  same  after  "Net  Profit  from  Operations." 


Problem  14 

Write  a  reply  to  the  following  letter,  and  prepare  a  balance 
sheet  as  requested  therein: 

Dear  Sir: 

Our  bank  has  asked  us  for  a  statement  for  credit  purpose.  Will  you 
please  prepare  one  for  us? 

Our  plants  stand  at  their  cost  price,  which  is  $60,400.  We  have  set  up 
a  reserve  for  a  depreciation  of  $10,200.  There  is  a  mortgage  for  $20,000 
on  the  plant  and  interest  on  the  mortgage  is  at  6%,  and  is  paid  up  to  three 
months  ago. 

We  hold  $10,000  of  notes  receivable,  and  have  discounted  $25,000  of 
notes  with  the  bank.  Our  accounts  receivable,  which  we  consider  good, 
amount  to  $18,000,  including  $3,000  due  from  one  of  our  employees 
personal  account.  Our  trade  accounts  receivable  are  subject  to  5%  dis- 
count if  paid  at  due  date,  and  only  $1,000  is  now  past  due.  Our  accounts 
in  suspense  amount  to  $4,000.     I  believe  these  are  50%  good. 

We  have  ordered  a  new  machine  to  cost  $6,000,  but  it  has  not  yet  been 
delivered.  We  have  endorsed  a  note  for  $6,000  for  our  friends,  the  A.  B. 
Company,  but  I  am  confident  they  will  take  care  of  it  when  it  is  due. 

Our  accounts  payable  amount  to  $4,200.  Our  insurance  amounts  to 
$400  a  year,  and  has  six  months  to  run.  We  have  a  note  at  the  bank  for 
$5,000,  interest  paid  to  date. 

We  own  fifty  shares  of  stock  in  the  company  from  which  we  buy  raw 


156  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

material.  This  stock  cost  us  $2,800  and  is  surely  worth  it,  though  we  might 
have  difficulty  in  selling  it  in  a  hurry.  Our  inventory  is  taken  at  a  low 
selling  price,  which  is  some  10%  more  than  it  cost  us.  The  amount  is 
$17,600.  In  addition,  we  have  a  special  contract  for  one  of  our  customers. 
The  contract  price  is  $25,000.  We  have  spent  $12,000  on  it,  and  expect 
to  have  to  spend  $4,000  more,  and  we  have  received  $10,000  on  account. 
Our  cash  in  bank  is  $4,800,  and  cash  in  hand,  $200. 

I  have  told  you  all  the  facts  I  think  you  need.  Perhaps  some  are  not 
required,  but  I  want  to  give  the  bankers  all  the  information  they  ought 
to  have  in  the  way  they  expect  to  get  it. 

I  do  not,  of  course,  expect  you  to  accept  any  responsibility  for  the  fig- 
ures in  the  statement,  but  simply  to  prepare  the  statement  in  the  best  form 
you  can  from  this  letter.  If  you  have  any  suggestions  as  to  how  I  can 
better  meet  the  bank's  requirements,  please  let  me  have  them. 

(Signed)     R.  P.  Jones. 

Required : 

Prepare  a  balance  sheet  following  the  form  recommended 
by  the  Federal  Reserve  Board.     (Form  XXXI.) 

(From  American  Institute  Examination) 

Comments. — Care  should  be  used  in  handling  the  accounts  receivable 
items.  The  trade  accounts  receivable  amount  to  $15,000.  Ol  this  amount, 
$1,000  is  past  due,  leaving  $14,000  not  past  due,  and  subject  to  a  5%  dis- 
count. Set  up  a  reserve  for  5%  of  $14,000.  This  is  perhaps  more  than 
will  be  taken,  but  it  is  better  to  overestimate  this  item  than  to  under- 
estimate it.  Inasmuch  as  the  accounts  receivable  in  suspense  are  esti- 
mated to  be  worth  only  50%,  a  reserve  should  be  created  for  the  $2,000 
not  considered  good. 

Show  order  for  machine  as  a  footnote  to  the  balance  sheet.  Handle 
the  contingent  liability  on  account  of  endorsement  in  the  same  manner. 
The  merchandise  inventory  must  be  reduced  to  cost  figuf'es. 

In  handling  the  contract,  it  is  considered  better  accounting  not  to  antici- 
pate profits  until  completed.  Carry  as  an  asset  the  net  amount  expended 
on  account  of  contract.     The  details  may  be  shown  in  parentheses. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 


157 


Problem  15 

From  the  following  trial  balance  of  the  Sampson  Company, 
December  31,  1919,  after  closing,  prepare  a  statement  of  financial 
condition,  such  as  might  be  presented  to  bankers: 


Debits 

Credits 

Prepaid  Insurance           $ 

1 

850 

Reserve  for  Customers' 

Plant  Property 

350 

000 

Discounts                      $ 

13  500 

Notes  Receivable 

16 

500 

Notes  Payable 

35  000 

Finished  Goods 

47 

800 

Surplus — Capital 

240  000 

Patents,  Trade-Marks 

Profit  and  Loss 

243  650 

and  Good-will 

500 

000 

Reserve  for  Credit  Losses 

15  000 

Prepaid  Interest 

525 

Accounts  Payable 

62  000 

Goods  in  Process 

53 

750 

Reserve    for    Deprecia- 

Cash 

52 

425 

tion  of  Plant  Property 

85  000 

Advances  to  Salesmen 

750 

Salaries  and  Wages  Pay- 

Materials and  Supplies 

25 

500 

able 

2  350 

Treasury  Preferred 

Preferred  Stock* 

100  000 

Stock 

5 

000 

Common  Stockf 

400  000 

Customers 

145 

900 

Dividends  Payable 
Accrued  Taxes  Payable 

1^ 

2  000 
1  500 

£ 

200 

000 

200  000 

*  1,000  shares,  par  value  $100  each,  preferred  as  to  assets  and  dividends, 
t  80,000  shares  of  no  par  value,  issued  at  a  stated  value  of  $5.00  a  share. 

Required : 

Set  up  a  balance  sheet  using  as  a  model  the  form  recom- 
mended in  the  bulletin  of  the  Federal  Reserve  Board: 
"Approved  Methods  for  the  Preparation  of  Balance  Sheet 
Statements"  (See  Form  XXXI). 

{From  American  Institvte  Examination) 


158  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  16 

Y  AND  Z  COMPANY 

Trial  Balance— July  1,  1920 

Cash  %         4  005  07 
Accounts  Receivable  250  317  02 
Real  Estate  16  520  00 
Merchandise  Inventory,  January  1,  1920            210  319  07 
Discounts  Allowed  Customers  35  318  72 
Bad  Debts  Charged  Off  4  414  84 
Merchandise  Purchases  738  898  43 
Expenses  47  397  80 
Notes  Receivable  1  436  11 
Machinery  3  780  00 
Sales  $     916  389  04 
Accounts  Payable,  Merchandise  175  119  28 
Notes  Payable  42  500  00 
Discounts  Received  on  Merchandise  Settle- 
ments 29  320  16 
Capital  Stock  125  000  00 

Surplus  24  078  58 

$1  312  407  06     $1  312  407  06 

You  are  asked  by  a  creditor  to  examine  the  books  of  the  Y 
and  Z  Company  and  present  a  balance  sheet  as  of  July  1,  1920, 
together  with  a  profit  and  loss  statement,  showing  the  results 
of  the  business  for  the  preceding  six  months. 

On  January  1,  1920,  the  merchandise  inventory  was  $210,319.07 
and  on  July  1,  1920,  it  was  $110,318.67.  You  find  these  amounts 
in  accordance  with  the  stock  sheets  turned  over  to  the  book- 
keeper by  the  stock  clerk. 

On  January  1,  1920,  the  accounts  receivable  were  $216,895.98, 
and  on  July  1,  1920,  they  were  $250,317.02,  and  on  January  1, 
1920,  the  merchandise  accounts  payable  were  $22,524.05,  and  on 
July  1,  1920,  they  were  $175,119.28;  you  find  that  the  totals 
of  the  customers'  and  creditors'  accounts  on  the  sales  and  pur- 
chases ledgers  on  these  dates  are  in  agreement  with  the  controlling 
accounts. 

Prepare  statements  which  in  your  opinion  will  correctly  rep- 
resent the  condition  of  this  company,  and  which  give  the  creditor 
a  true  statement  of  its  earning  capacity  for  this  period. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  159 

Required : 

(a)  Balance  sheet  as  of  July  1,  1920 

(b)  Profit  and  loss  statement  for  six  months  ending  July  1, 
1920. 

{From  Massachusetts  C.  P.  A.  Examination) 

Comments. — The  inventory  figures  and  the  amount  due  from  customers 
and  to  creditors  both  at  the  beginning  and  the  close  of  the  period  are 
apparently  for  comparative  purposes.  There  is  insufficient  data  furnished 
to  enable  us  to  reconcile  the  balances  of  accounts  receivable  and  accounts 
payable  at  the  beginning  of  the  period  with  the  balances  at  the  end. 

Both  inventory  figures  will  be  used  in  the  statements  while  the  accounts 
receivable  and  accounts  payable  balances  on  January  1  may  be  ignored. 
The  amount  due  from  customers  shows  a  slight  increase  while  the  amount 
due  creditors  has  increased  eight-fold.  The  inventory  shows  a  shrinkage 
of  $100,000. 

The  cash  seems  rather  small  in  comparison  with  the  large  amount  due 
creditors.     The  stock  has  been  turned  a  trifle  more  than  five  times. 

Approximately  one-fourth  of  the  sales  are  as  yet  unpaid;  therefore,  the 
average  term  of  credit  must  be  90  days.  The  discounts  allowed  by  cus- 
tomers amount  to  almost  4%  of  the  sales.  This  seems  like  a  large  discount 
item  for  sales  made  on  a  90-day  basis. 


160  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  D — Manufacturing  Statements 
Problem  17 

From  the  following  items  prepare  the  operating  statement  of 

the  A  Manufacturing  Company  for  the  fiscal  year  ending  June 
30,  1919.  Your  statement  should  clearly  set  forth  the  cost  of 
goods  made,  cost  of  goods  sold,  selling  expenses,  etc. 

Advertising  $6  000  00 

Association  Membership  Dues  200  00 

Cash  Discount  on  Purchases  3  900  00 

Cash  Discount  on  Sales  2  100  00 

Commissions  Paid  7  750  00 

Depreciation,  Machinery  and  Equipment  3  750  00 

Depreciation  on  Buildings  3  600  00 

Direct  Labor  135  000  00 

Dividends  Paid  10  000  00 

Dividends  Received  on  Stocks  1  500  00 

Donations  and  Charity  300  00 

Factory  General  Expense  1  200  00 

Factory  Office  Salaries  7  000  00 

Factory  Supphes  900  00 

Federal  Income,  Profits  and  Taxes  20  000  00 

Heat,  Light,  and  Power  4  000  00 

Insurance,  Fire  1  000  00 

Insurance,  Life  (President's  Life)  500  00 

Interest  on  Bonds  Payable  3  500  00 

Interest  on  Notes  Receivable  900  00 

Interest  on  Notes  Payable  1  600  00 

Interest  on  Bonds  Owned  1  400  00 

Officers'  Salaries  25  000  00 

Office  Salaries  •                          9  500  00 

Postage  2  100  00 

Property  Taxes  3  750  00 

Raw  Material  Consumed  110  000  00 

Repairs  to  Machinery  and  Equipment  1  250  00 

Returned  Sales  5  000  00 

Sales  605  000  00 

Salesmen's  Salaries  21  000  00 

Stationery  and  Printing  3  700  00 

Subscription  to  Trade  Papers  25  00 

Superintendent  of  Factory  11  000  00 

Telephone  and  Telegraph  1  900  00 

Traveling  Expense  4  500  00 

Sundry  General  Expense  1  250  00 


CLASSIFIED  PROBLEMS  AND   EXERCISES  161 

The  inventories  of  finished  goods  and  work  in  process  are  as 
follows : 

July  1,  1918      June  30,1919 
Finished  Goods  $35  000  00         $40  000  00 

Work  in  Process      '  52  200  00  25  400  00 

Required : 

(a)  Statement  of  cost  of  goods  manufactured   for  year  end- 
ing June  30,  1919 

(b)  Profit  and  loss  statement  for  year  ending  Jime  30,  1919. 

(From  Wisconsin  C.  P.  A.  Examination) 

Comments. — An  operating  statement  only  is  called  for  in  this  problem, 
the  figures  submitted  being  only  such  as  are  required  for  such  purpose. 
While  all  the  data  submitted  in  this  problem  might  be  included  in  one 
operating  statement  headed  "  Manufacturing,  Trading  and  Profit  and  Loss 
Statement,"  or  some  such  title,  especially  as  many  of  the  manufacturing 
details  are  omitted,  it  is  usually  considered  better  practice  to  set  up  two 
statements,  one  for  the  purpose  of  showing  the  cost  of  the  manufactured 
product  for  the  period  (Forms  XIV  and  XVI),  the  result  of  which  is  then 
transferred  to  a  profit  and  loss  statement  in  the  usual  form  (Form  XIII). 
The  requirements  in  this  problem  call  for  such  statements. 

Include  in  the  Analysis  of  Cost  of  Goods  Manufactured  Statement  ail 
items  that  have  to  do  directly  with  the  manufacturing  process.  Inasmuch 
as  the  details  concerning  raw  materials  are  not  given,  only  the  amount  con- 
sumed can  be  shown  in  the  statement.  Items  that  represent  both  admin- 
istrative and  factory  expenses,  and  for  which  no  basis  of  apportionment  is 
given,  such  as  Property  Taxes,  etc.,  may  be  included  in  the  manufactur- 
ing statement. 

Selling,  administrative  and  financial  items  will  be  shown  in  the  profit 
and  loss  statement  in  the  usual  form  (Form  XIII).  Federal  Income  Taxes 
will  be  shown  as  a  separate  deduction  from  the  net  income  before  providing 
for  Federal  Taxes.     (See  Form  X.) 


Problem  18 


From  the  following  accounts  appearing  on  the  trial  balance, 
prepare,  without  using  figures,  statements  which  you  consider 
best  calculated  to  set  forth  the  operations  of  the  year  and  the 


162 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


financial  position  vA,  DeceniV)or  31,  191G,  assuming  that  you  are 
preparing  these  statements  on  behalf  of  a  bank  which  desires 
paper  available  for  rediscount  with  the  federal  reserve  bank. 

Accounts  Payable 

Accounts  Receivable 

Advertising 

Buildings 

Capital  Stock 

Capital  Stock  Unsubscribed 

Cash  on  Deposit 

Depreciation,  Buildings,  1916 

Depreciation,  Machinery,  1916 

Discount  Allowed  on  Sales 

Discount  Received  on  Purchases 

Doubtful  Accounts  Receivable 

Factory  Expense 

Finished  Goods  Inventory, December 
31,  1915 

Freight  and  Cartage  Inward 

Freight  and  Cartage  Outward 

Fuel 

Good-Will 

Insurance,  Buildings  and  Machinery 

Insurance,  Finished  Goods 

Insurance  Unexpired,  Buildings  and 
Machinery 

Petty  Cash 

Insurance  Unexpired,  Finished  Goods 

Interest  Accrued  on  Investments 

Interest  Accrued  on  Mortgage  Pay- 
able 

Interest  Paid 

Interest  Received 

Investments 

Labor  Factory  Payroll 

Land 

Macliinery 

The  inventories,  December  31,  1916,  not  on  the  books  were: 
Finished  goods  Material  work  in  process 

Required : 

Balance  sheet — account  form. 

{From  American  Institute  Examination) 

Comments. — Follow  as  closely  as  possible  form  recommended  by  Federal 
Reserve  Board  for  use  of  meml)er  banks.      (Form  XXXI.) 


Material  Inventory,  12/31/15 

Material  Purchases 

Mortgage  on  Plant 

Notes  Payable 

Notes  Receivable 

Office  Expenses 

Commissions  Paid  Salesmen 

Office  Furniture  and  Fixtures 

Office  Payroll 

Organization  Expenses  (to  be  dis- 
tributed over  three  years  from 
January  1,  1916) 

Payroll  Factory  Accrued 

Payroll  Office  Accrued 

Salaries  General  Officers 

Prepaid  Taxes  and  Real  Estate 

Profit  and  Loss,  1915  Surplus 

Repairs,  Buildings 

Repairs,  Machinery 

Reserve  for  Bad  and  Doubtful  Ac- 
counts 

Reserve  for  Depreciation,  Buildings 

Reserve  for  Depreciation,  Machinery 

Returns  and  Allowances  on  Sales 

Salaries  Salesmen 

Sales 

Salesmen  Accounts — Advances  on 
Salaries 

Taxes,  Income  U.  S. 

Subscriptions  and  Donations 

Taxes,  Real  Estate 

Work  in  Process  Inventory,  Decem- 
ber 31,  1915 


CLASSIFIED   PROBLEMS  AND   EXERCISES 

Problem  19 
MACFARLANE  MANUFACTURING  COMPANY 


163 


Trial  Balance— April  30,  1916 


Land  and  Buildings  (cost)  $ 

Machinery  and  Equipment  (cost) 

Office  Furniture  and  Fixtures  (cost) 

Sales  Room  Equipment  (cost) 

Factory  Tools  and  Supplies  (on  hand  Dec.  31, 
1915) 

Cash 

Accounts  Receivable 

Subscriptions  to  Capital  Stock — Common 

Securities  Owned  (cost) 

Good-Will 

Patent  Rights 

Raw   Materials   (on   hand   Dec.   31,    1915,   $15,- 
432.60;  purchases,  $46,380.40) 

Manufacturing  (in  process  Dec.  31,  1915) 

Finished  Goods  (on  hand  Dec.  31,  1915) 

Bond  Discount  and  Expenses 

First  Mortgage  Bonds 

Accounts  Payable 

Capital    Stock — Preferred     (authorized    issue, 
1,000  shares,  par  $100  each) 

Capital     Stock — Common     (authorized     issue, 
2,000  shares,  par  $100  each) 

Surplus  (undivided  profits,  Dec.  31,  1915) 

Capital  Stock — Common,  Subscribed 

Sales  of  Finished  Goods 

Salesmen's  Salaries  and  Expenses 

Delivery  Expenses 

Office  Clerks'  Salaries 

General  Office  Supplies  Used 

Taxes 

Insurance 

Direct  Labor 

Indirect  Labor 

Factory  Heat,  Light,  and  Power 

Reserve  for  Depreciation  of  Buildings 

Reserve    for    Depreciation    of    Machinery    and 
Equipment 

Reserve  for  Depreciation  of  Office  Equipment 

Reserve  for  Depreciation  of  Sales  Room  Equip- 
ment 


68  000  00 

36  800  00 

12  300  00 

9  840  00 

834  00 

2  960  00 

43  680  39 

8  000  00 

12  500  00 

10  000  00 

8  400  00 

61  813  00 
20  268  80 
36  261   15 

9  000  00 


8  269  40 
3  732  89 
5  321  76 
1  869  30 
486  00 

1  240  00 
14  178  32 

5  650  00 

2  730  46 


$70  000  00 
17  576  16 

70  000  00 

85  000  00 
13  869  20 
16  000  00 
85  239  41 


15  000  00 

7  682  40 
2  800  00 

968  30 

$384  135  47  $384  135  47 


164  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Adjustments: 

Cost  of  buildings,  $45,000;  estimated  life,  30  years. 

Estimated  life  of  machinery  and  equipment,  8  years. 

Estimated  life  of  office  furniture  and  fixtures,  10  years. 

Estimated  life  of  salesroom  equipment,  10  years. 

Factory  tools  and  supplies  on  hand,  April  30,  1916,  $500. 

The  first  mortgage  bonds  were  issued  January  1,  1916,  and 
mature  January  1,  1926.  The  bond  discount  and  expenses  are 
to  be  written  off  over  that  time. 

The  bonds  bear  interest  at  the  rate  of  6%  per  annum,  payable 
January  1  and  July  1. 

Insurance  prepaid,  $620. 

Raw  materials  on  hand,  April  30,  1916  $10  400  00 

Goods  in  process,  April  30,  1916  36  126  50 

Finished  goods  on  hand,  April  30,  1916  28  740  80 

Required: 

(a)  Adjusting  entries 

(b)  Manufacturing  statement 

(c)  Profit  and  loss  statement 

(d)  Balance  sheet — account  form 

(e)  Closing  entries. 

Comments. — Give  careful  attention  to  Illustrative  Forms  for  suggestions 
regarding  arrangement  of  the  balance  sheet  and  statements. 


Problem  20 

Thompson  and  Brown  are  partners  operating  under  the  name 
of  Thompson  and  Company.  The  following  is  a  trial  balance  of 
the  partnership  books  at  December  31,  1920: 

Cash  $     103  000  00 

Accounts  Receivable  187  000  00 

Notes  Receivable  10  000  00 

Land  50  000  00 

Buildings  200  000  00 

Machinery  and  Tools  300  000  00 


CLASSIFIED  PROBLEMS  AND   EXERCISES 


165 


Office  Furniture 

Factory  Fixtures 

Good-WiU 

Work  in  Process,  Inventory,  1/1/20 

Raw  Materials,  Inventory,  1/1/20 

Raw  Materials  Purchased 

Productive  Labor 

Non-Productive  Labor 

Insurance — Factory 

Taxes — Factory 

Repairs — Machinery 

Repairs — Building,  Factory 

Repairs — Office  Fixtures 

Manufacturing  Supplies 

Salesmen's  Salaries 

Salesmen's  Expenses 

Salesmen's  Commissions 

Advertising 

Freight  Out 

Cartage  Out 

Packing  Supplies 

Packing  Labor 

Office  Salaries — Clerks 

Office  Stationery 

Cost  Department  Salaries 

Factory — Stationery 

Postage — Office 

Telephone — Telegrams 

Donations 

Legal  Expenses 

Auditing 

Miscellaneous  Factory  Expenses 

Miscellaneous  General  Expenses 

Interest  Paid 

Heat,  Light,  and  Power 

Reserve  for  Depreciation 

Cash  Discount  on  Sales 

Allowances  on  Sales 

Interest  Earned 

Cash  Discount  on  Purchases 

Sales 

Accounts  Payable 

Notes  Payable 

C.  W.  Thompson — Capital 

J.  R.  Brown — Capital 

C.  W.  Thompson — Drawing 

J.  R.  Brown — Drawing 


I   10  000  00 

20  000  00 

100  000  00 

100  000  00 

75  000  00 

300  000  00 

200  000  00 

100  000  00 

10  000  00 

5  000  00 
12  000  00 

2  000  00 
500  00 

7  000  00 
20  000  00 
12  000  00 
10  000  00 
50  000  00 
10  000  00 

2  000  00 
4  000  00 

10  000  00 
15  000  00 

3  000  00 
12  000  00 

3  000  00 

6  000  00 

4  000  00 
500  00 

1  000  00 

1  000  00 

5  000  00 
10  000  00 

2  000  00 
24  000  00 

7  000  00 
37  000  00 


$   80  000  00 


1  500  00 
10  500  00 
879  359  28 
92  640  72 
100  000  00 
100  000  00 
800  000  00 


14  000  00 

10  000  00  

$2  064  000  00  $2  064  000  00 


$125  000  00 

2 

000 

00 

2 

000 

00 

1 

000 

00 

5 

000 

00 

1 

000 

00 

500 

00 

200 

000 

00 

166  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

The  inventories  at  December  31,  1920,  were  as  follows: 

Raw  Materials 

Manufacturing  Supplies 

Packing  Supplies 

Prepaid  Insurance 

Advertising 

Office  Stationery 

Accrued  Interest — Notes  Receivable 

Work  in  Process 

You  are  to  make  provision  for  the  following: 

Depreciation: 

Buildings  3% 

Machinery  and  Tools  10% 

Factory  Fixtures  10% 

Office  Fixtures  10% 

Taxes  accrued  and  unpaid  December  31,  1920  $  3  000  00 

Accrued  Productive  Labor  3  000  00 

Accrued  Non-Productive  Labor  1  000  00 

Accrued  Salaries  of  Salesmen  500  00 

Accrued  Commissions  of  Salesmen  10  000  00 

Bad  Debts  to  be  written  off  3  000  00 

Accrued  Interest — Notes  Payable  500  00 

The  partnership  agreement  provides  that  6%  interest  on 
capital  is  to  be  credited  to  each  partner's  account  and  profits  are 
to  be  divided,  Thompson  60%  and  Brown  40%  respectively. 
Brown  is  to  receive  a  salary  of  $10,000  and  Thompson  a  salary  of 
$6,000.  The  salaries  had  not  been  credited  to  their  accounts  at 
December  31,  1920. 
Required : 

(a)  Adjusting  entries  in  proper  form 

(b)  Balance  sheet — account  form 

(c)  Profit  and  loss  statement 

(d)  Cost  of  goods  manufactured  statement. 

{From  Ohio  C.  P.  A.  Examination.) 


CLASSIFIED  PROBLEMS  AND   EXERCISES 


167 


Problem  21 

The  Bond  Machine  Manufacturing  Company  commenced 
business  January  1,  1919,  with  a  paid-up  capital  of  $800,000. 
The  following  is  a  trial  balance  of  the  general  ledger  at  December 
31,  1919: 


Cash 

$10  000  00 

Accounts  Receivable 

100  000  00 

Notes  Receivable 

13  000  00 

Liberty  Bonds 

100  000  00 

Land 

25  000  00 

Factory  Buildings 

150  000  00 

Machinery  and  Tools 

250  000  00 

Office  Furniture 

5  000  00 

Factory  Fixtures 

15  000  00 

Good-Will 

200  000  00 

Raw  Materials 

350  090  00 

Productive  Labor 

213  000  00 

Non-Productive  Labor 

87  000  00 

Insurance,  Factory 

6  000  00 

Taxes,  Factory 

4  000  00 

Heat,  Light,  and  Power,  Factory 

20  000  00 

Repairs,  Machinery 

32  000  00 

Repairs,  Office  Furniture 

300  00 

Repairs,  Buildings,  Factory 

6  000  00 

Manufacturing  Supplies 

6  590  00 

Salesmen's  Salaries 

30  000  00 

Salesmen's  Expenses 

20  000  00 

Salesmen's  Commissions 

26  000  00 

Advertising 

25  000  00 

Freight  Out 

12  000  00 

Cartage  Out 

3  000  00 

Packing  Supplies 

6  000  00 

Packing  Labor 

4  000  00 

Office  Salaries  (Clerks) 

12  000  00 

Office  Stationery 

4  000  00 

Cost  Department  Salaries 

10  000  00 

Factory  Stationery 

2  000  00 

Postage  (Office) 

3  000  00 

Telephone  and  Telegraph 

3  000  00 

Donations 

5  000  00 

Legal  Expenses 

1  000  00 

Auditing 

1  000  00 

Miscellaneous  Factory  Expenses 

3  000  00 

Miscellaneous  General  Expenses 

4  000  00 

Interest  on  Own  Bonds 

3  000  00 

Interest  on  Notes  Pavable 

900  00 

168 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Cash  Discount  on  Sales 
Allowances  on  Sales 
Executive  Salaries 
Interest  on  Notes  Receivable 
Interest  on  Liberty  Bonds 
Interest  on  Bank  Balance 
Cash  Discount  on  Purchases 
Sales 

Capital  Stock 
Mortgage  Bonds 
Accounts  Payable 
Notes  Payable 


;  5  000  00 

3  000  00 

40  000  00 

$1  000  00 

2  000  00 

1  000  00 

7  000  00 

759  119  00 

800  000  00 

100  000  00 

128  761  00 

20  000  00 

818  880  00  $1  818  880  00 


The  inventories  at  December  31,  1919,  were  as  follows: 


Raw  Materials 

Manufacturing  Supplies 

Packing  Supplies 

Prepaid  Insurance 

Advertising 

Office  Stationery 

Accrued  Interest  on  Notes  Receivable 

Accrued  Interest  on  Liberty  Bonds 

Work  in  Process 


$75  000  00 

1 

500 

00 

1 

000 

00 

2 

000 

00 

3 

000 

00 

500 

00 

240 

00 

2 

000 

00 

150 

000  00 

You  are  to  make  provision  for  the  following: 

Depreciation: 

Buildings 

Machinery  and  Tools 

Factory  Fixtures 

Office  Fixtures 
Taxes  Accrued  and  Unpaid,  12/31/19 
Accrued  Productive  Labor 
Accrued  Non-Productive  Labor 
Accrued  Salaries  of  Salesmen 
Accrued  Commissions  of  Salesmen 
Bad  Debts  to  be  written  off 
Accrued  Interest  on  Notes  Payable 


3% 
10 
10 
10 

$4  000  00 


000  00 
000  00 
500  00 
000  00 
040  00 
300  00 


Of  the  total  non-productive  labor,  $10,000  was  for  repairing 
machinery.  There  was  expended  on  new  machinery,  built  for 
own  use  and  installed  during  the  year,  $4,000  for  materials  and 
$G,000  for  productive  labor.  None  of  these  expenditures  were 
charged  out. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  169 

Executive  salaries  are  to  be  divided  as  follows:  30%  to  selling 
expenses,  20%  to  manufacturing  expenses,  and  the  balance  to 
administrative  expenses. 

Required : 

(a)  Necessary  adjusting  entries 

(b)  Balance  sheet — account  form 

(c)  Profit  and  loss  statement 

(d)  Cost  of  goods  manufactured  statement. 

{From  Ohio  C.  P.  A.  Examination) 


Problem  22 

The  following  is  the  balance  sheet  of  the  A.  B    Company- 
January  1,  1915: 

Assets 

Cash  $52  864  00 

Accounts  Receivable  197  425  00 
Inventories: 

Raw  Material  84  268  00 

Finished  Goods  31  597  00 

Office  Furniture  and  Fixtures  7  500  00 

Land  180  000  00 

Buildings  150  000  00 

Machinery  250  000  00 

$953  654  00 

Liabilities 

Accounts  Payable  $35  482  00 

Dividends  Payable,  Preferred  Stock,  February  1,  1915  7  500  00 

Dividends  Payable,  Common  Stock,  February  1,  1915  10  000  00 

Mortgage  Bonds,  20-year  at  6%,  dated  January  1,  1915  100  000  00 

Premium  on  Bonds  5  000  CO 

Capital  Stock,  Preferred  250  000  00 

Capital  Stock,  Common  500  000  00 

Reserve  for  Bad  Debts  4  718  00 

Surplus  40  954  00 

$953  654  00 


170  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

The  transactions  for  the  year  ending  January  1,  1916,  have 
been  as  follows  : 

Cash  Received  from  Customers  $793  501  00 

Rent  Received  600  00 
There  have  been  purchased  1,232,000  pounds  raw  material  at 

20c  per  pound 

Sales  have  been  made  823  334  00 

Discount  and  Allowances  on  Sales  23  519  00 

Bad  Debts  Written  Off  2  143  00 
Disbursements  have  been  made  for: 

Accounts  Payable  243  356  00 

Factory  Expense  7  489  00 

Factory  Labor  351  426  00 

Factory  Repairs  23  843  00 

Office  Expense  1  927  00 

Selling  Expense  52  914  00 

Salaries  58  471  00 

Taxes  7  853  00 

Inventories,  January  1,  1916:' 

Raw  material,  412,595  pounds  having  a  market  value  of  22c 
per  pound;  and  finished  goods,  $30,842.  The  land  is  estimated 
to  be  worth  $200,000. 

Semi-annual  dividends  of  3%  on  Preferred  and  2%  on  Common 
declared  in  June  and  December,  payable  August  1  and  Febru- 
ary 1.  Reserves  for  depreciation  of  buildings,  3%;  machinery, 
5%;  office  furniture  and  fixtures,  10%.  Bad  and  doubtful  debts 
reserve  should  be  2%  of  accounts  receivable. 

Required : 

(a)  Balance  sheet  as  of  January  1,  1916 

(b)  Profit  and  loss   statement    for  year  ending  December 
31,    1916 

(c)  Statement  of  cost  of  goods  manufactured  for  period. 

(From  the  American  Institute  Examination) 

Comments. — It  will  be  necessary  to  bring  into  the  accounts  the  trans- 
actions of  the  year  beginning  January  1,  1915,  in  order  to  obtain  the  balances 
with  which  to  make  up  the  statements  called  for. 

It  is  suggested  that  these  entries  be  carried  directly  to  a  working  sheet 
and  an  adjusted  trial  balance  taken  as  of  December  31,  1915.  This  v.'orking 
sheet  need  not  be  submitted  with  the  solution. 

Proper  charge  should  be  made  for  bond  interest  for  one  year.  Write  off 
1/20  of  the  Bond  Premium.  The  balance  will  be  carried  as  a  deferred  credit 
in  the  balance  sheet.     It  may  be  assumed  that  the  semi-annual  bond  interest 


CLASSIFIED   PROBLEMS  AND   EXERCISES 


171 


of  $3,000  was  paid  on  July  1,  1915,  the  due  date  if  the  interest  is  payable 
semi-annually  as  is  customary. 

The  inventory  of  ra\/  materials  on  January  1,  1916,  should  be  taken  at 
cost  rather  than  market,  the  former  being  the  lower.  The  estimated  value 
of  the  land,  $200,000,  as  of  January  1,  1916,  may  be  shown  short  in  the 
balance  sheet  in  parentheses  to  indicate  the  present  value,  but  the  apprecia, 
tion  should  not  be  extended  to  the  asset  column. 

While  there  is  no  record  that  the  dividends  payable  February  1,  1915- 
and  shown  in  the  balance  sheet  of  that  date  as  a  liability  have  been  paid,  it 
may  be  assumed  that  they  were  paid  on  that  date.  It  may  also  be  assumed 
that  the  June  dividends,  payable  August  1,  have  been  paid.  The  December 
1915  dividends,  payable  February  1,  1916,  will  be  shown  as  Habilities. 


Problem  23 

At  the  close  of  its  fiscal  year,  December  31,  1915,  the  Trial 
Balance  of  The  Nau-Pace  Company  was  as  follows: 

Real  Estate 

Fixed  Machinery 

Movable  Equipment 

Shaftings,  Pulleys,  etc. 

Stable  Equipment 

Office  Equipment 

Drawings  and  Patterns 

Patents 

Capital  Stock 

First  Mortgage  Bonds 

Profit  and  Loss 

Surplus 

Dividends 

Interest  on  Bonds 

Other  Interest  Paid 

Interest  Received 

Cash  Discount  on  Purchase 

Cash  Discounts  on  Sales 

Sales 

Return  Sales 

Cash 

Notes  Receivable 

Accounts  Receivable 


225  000 

00 

150  000 

00 

18  000 

00 

10  500 

00 

3  500 

00 

2  915 

90 

9  000 

00 

75  000  00 

$  500  000  00 

100  000  00 

86  140  28 

300  00 

5  000 

00 

1  323 

10 

2  469  50 
13  389  52 

2  861 

50 

1  540  816  75 

8  258 

25 

27  750 

65 

50  750 

00 

298  650 

25 

172 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Raw  Materials 

$  622  190  90 

Finished  Goods,  Jan.  1,  1915 

62  735  06 

Goods  in  Process,  Jan.  1,  1915 

24  747  27 

Fuel 

38  688  28 

Insurance 

4  000  00 

Taxes 

5  000  00 

Notes  Payable 

$  40 

000 

00 

Accounts  Payable 

46 

585 

85 

Reserve  for  Depreciation: 

Machinery  and  Equipment 

50 

000 

00 

Buildings 

30 

000 

00 

Patents 

22 

058 

80 

Bad  Accounts 

6 

240 

75 

Salaries,  Offices  and  Clerks  (general) 

56  150  00 

General  Office  Supplies 

2  950  75 

Postage,  Telegraph,  and  Telephone 

1  560  00 

Miscellaneous  General  Expenses 

850  00 

Advertising 

35  000  00 

Salaries  and  Expenses,  Salesmen 

72  350  31 

Agents'  Commissions 

30  141  40 

Credit  Department  Salaries 

$7  560  00 

Miscellaneous  Expenses,  Selling 

610  00 

Stable  Expenses 

3  963  46 

Direct  Labor  (mfg.) 

508  311  39 

Indirect  Labor  (mfg.) 

44  981  01 

Superintendence,  Factory 

6  000  00 

Factory  Supplies 

8  547  18 

Repairs,  Machinery  and  Equipment 

7  418  52 

Repairs  of  Buildings 

2  860  47 

Power.  Heat,  and  Light 

2  875  80 

$2  43S  001  45 

$2  438 

001 

45 

You  arc  to  take  into  consideration  the  following  facts: 

(1)  Real  estate,  machinery  and  other  factory  equipment,  and 
patents  arc  stated  at  cost. 

(2)  Of  the  real  estate  $25,000  is  for  land  and  $200,000  is  for 
buildinj>,s. 

(3)  All   capital  stock  authorized  has  been  issued  and  is  out- 
standing);. 

(4)  Allowances  for  depreciation  are: 

Machinery  and  Factory  Equipment,  $15,000. 
Building,  3%  on  cost. 
Patents  1/1 7th  of  cost. 

(5)  $15,000  is  to  be  set  aside  as  a  reserve  for  bad  accounts. 

(6)  Ten  per  cent  of  the  book  values  of  Stable  Equipment  and 


CLASSIFIED   PROBLEMS  AND   EXERCISES  173 

Office  Equipment,  and  l/6th  of  the  book  value  of  Drawings  and 
Patterns  are  to  be  charged  off. 

(7)  Inventories  at  the  close  of  the  fiscal  year  were : 


Raw  Materials 

$63  580  40 

Factory  Supplies 

$1 

525  00 

Finished  Goods 

58  864  56 

Office  Supplies 

500  00 

Goods  in  Process 

27  024  52 

Prepaid  Insurance 

500  00 

Fuel 

4  823  43 

(8)  The  accruals 

are: 

Taxes 

$  7  000  00 

Interest  on  Bonds 

$1 

000  00 

Direct  Labor 

12  618  75 

Advertising 

4 

718  50 

(9)  The  depreciation  on  stable  equipment  (see  item  6)  is  to 
be  charged  to  Stable  Expenses,  and  one- third  of  the  latter  is 
apportioned  to  Manufacturing  Expenses  and  two-thirds  to  Selling 
Expenses. 

(10)  The  cost  of  fuel  used  is  to  be  charged  to  Power,  Heat,  and 
Light. 

(11)  Maintenance  of  Real  Estate  is  to  be  charged  with  cost  of 
repairs  to  buildings,  depreciation  on  buildings,  20%  of  taxes 
for  the  year,  and  $1,000  for  insurance.  The  total  cost  of  such 
maintenance  is  to  be  shown  as  an  item  of  manufacturing  expense 
on  the  statement  of  Cost  of  Sales. 

(12)  The  portion  of  insurance  remaining  after  charging  Main- 
tenance of  Real  Estate  is  to  be  allocated  to  manufacturing 
expenses. 

(13)  Thirty  per  cent,  of  the  taxes  for  the  year  is  to  be  appor- 
tioned to  manufacturing  expenses  and  50%  is  to  be  charged 
against  income  (Gross  Income). 

(14)  Of  the  salaries  of  officers  and  clerks,  general,  $3,600 
should  be  apportioned  to  selling  expenses. 

(15)  Amongst  the  notes  receivable  is  a  note  for  $5,000,  per- 
taining to  a  previous  fiscal  year,  which  is  considered  to  be  worth- 
less.    No  provision  was  made  for  such  loss. 

Required : 

(a)  Adjusting  entries 

(b)  Profit  and  loss  statement 

(c)  Balance  sheet — account  form 

(d)  Cost  of  goods  manufactured. 

(From  Ohio  C.  P.  A.  Examination) 


174  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — Because  of  the  extended  adjustments  it  is  recommended 
that  a  working  sheet  be  used  in  solving  this  problem.  The  working  sheet 
need  not  be  submitted  with  the  solution. 


t»roblem  24 

The  main  office  of  a  manufacturing  concern  keeps  the  general 
books  of  the  company  and  sells  the  finished  product  which  is 
billed  to  it  by  the  factory  at  cost.  The  cost  books  of  the  factory 
show  the  following  facts  on  January  1,  1914: 

Cash  Fund  (Imprest),  $500;  Raw  Materials  and  Supplies,  $1.5,910.32; 
Work  in  Process,  made  up  of:  Material  and  Direct  Labor,  $55,816.25; 
Factory  Expenses,  $10,592.16;  and  Management  Expenses,  $6,200.83. 
Finished  Product,  $40,219.57.  A  portion  of  the  payroll  distributed  but 
not  yet  paid,  $3,553.42. 

During  the  year  1914  the  transactions  were  as  follows: 

Purchases  of  Raw  Materials,  $91,113.20;  Wages  Paid,  $143,273.49;  Fac- 
tory Expenses,  Charged,  $63,383.83;  Management  Expenses,  Charged, 
$40,315.33;  Sale  of  Power  to  another  company  occuping  adjacent  buildings, 
$100  per  month. 

The  raw  materials  and  supplies  used  amounted  to  $90,265.72; 
the  management  charges  distributed,  to  $40,315.33,  and  Factory 
expenses  distributed,  $63,519.10.  There  are  also  on  hand  un- 
paid local  bills  which  have  not  been  entered  on  the  books  amount- 
ing to  $135.27,  all  of  which  were  for  factory  expense. 

The  finished  product  made  during  the  year,  figured  at  cost, 
amounted  to  $338,652.32;  the  amount  of  finished  product  trans- 
ferred to  the  main  office  was  $340,192.45. 

At  the  close  of  the  year,  December  31,  1914,  there  was  unpaid 
and  undistributed  the  factory  payroll  for  four  days  amounting 
to  $2,942.10  and  also  550  hours  of  overtime,  payable  at  the  rate 
of  time  and  one-quarter,  the  regular  day  rate  being  35c  per  hour. 

Required: 

Write  up  all  the  ledger  accounts  on  the  factory  books  and 
show  the  final  trial  balance  of  December  31,  1914. 

{From  Massachusetts  C.  P.  A.  Examination.) 


CLASSIFIED   PROBLEMS  AND  EXERCISES  175 

Problem  25 

A  company  of  bicycle  manufacturors  makes  up  its  accounts 
December  31,  1907,  for  the  year.  The  following  are  the  debits 
to  the  profit  and  loss  account: 

Raw  Material  on  hand  January  1,  1907  $12  500  00 

Finished  Machines  on  hand  January  1,  1907,  1,600  wheels  at  $30  48  000  00 

Purchases  of  Material  62  500  00 

Lal)or,  productive  82  500  00 
Manufacturing  Expenses:   Coal,  repairs,  paint,  varnish,  super- 
intendents'  salaries,  unproductive  labor,  and  sundry  other 

expenses  23  000  00 

Agents'  Commissions  90  000  00 

Branch  Expense:  Rents,  salaries,  and  miscellaneous  40  000  00 
Selling  expense:   Travelers'  Expenses  and  salaries,  discounts, 

rebates,  and  miscellaneous  30  000  00 

Bad  Debts  8  000  00 

Depreciation  on  Machinery  and  Plant  5  500  00 

The  sales  for  the  year  1907  were  G,000  wheels,  yielding  $540,000; 
the  raw  material  on  December  31,  1907,  taken  at  cost,  were 
$4,000,  and  the  finished  wheels  in  stock  ready  for  sale  numbered 
800. 

Required : 

From  the  above  data,  prepare  a  statement  showing 

(a)  Number  of  wheels  manufactured 

(b)  Cost  per  wheel 

(c)  Gross  manufacturing  profit 

(d)  The  final  net  result,  including  in  the  profit  and  loss 
account  the  stock  of  finished  wheels  on  hand  December 
31,  1907,  at  their  cost  as  shown  by  the  accounts. 

{From  Michigan  C.  P.  A.  Examination.) 

Refer  to  page  229  far  theory  questions  on  financial  statements. 


176  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  E — Financial  Statements  Prepared  from  Single 
Entry  Records 

Problem  26 

The  books  of  William  Selby,  which  have  been  kept  by  single 
entry,  show  the  following  results  at  the  close  of  business,  April 
30,  1921:  Investment  of  Selby,  January  1,  1921,  $5,000;  due  from 
customers,  $3,000;  notes  on  hand,  $1,500;  interest  accrued,  $75 
cash  in  bank,  $3,560;  insurance  prepaid,  $125;  rents  payable 
accrued,  $180;  owing  to  creditors,  $1,950;  outstanding  notes,  $500 
total  of  purchase  invoices,  $15,350;  mortgage  in  favor  of  Selby 
$3,000,  on  which  there  is  owing  interest  for  six  months  at  6% 
The  sales  book  shows  sales  on  account,  $2,500,  for  cash,  $4,580 
and  for  notes,  $3,520.     Cost  of  expenses  not  available.     Inven- 
tory of  furniture  amounts  to  $450;  goods  on  hand,  $1,520. 

Required : 

(a)  Prepare  a  statement  showing  the  net  worth  on  April  30, 
1921,  together  with  the  profit  or  loss  for  the  period  from 
January  1  to  April  30,  1921 

(b)  Outline  the  necessary  journal  entry  to  change  the  books 
to  double  entry,  assuming  that  the  same  books  are  to 
be  continued. 

Comments. — The  data  given  in  this  problem  has  been  gathered  from 
various  sources  such  as  books  of  entry,  ledger,  inventories,  etc.,  as  is  cus- 
tomar.v  in  single  entry,  a  complete  record  not  being  kept  in  the  ledger.  It 
will  be  necessary  to  select  those  items  representing  assets  and  liabilities  on 
April  30,  1921,  set  them  up  in  statement  form,  and  find  the  net  worth,  which 
will  then  be  compared  with  the  investment  to  find  the  profit  or  loss.  This 
statement  is  in  effect  a  balance  sheet,  but  inasmuch  as  the  accounts  in 
single  entry  are  not  in  balance,  it  is  customary  to  call  it  a  Statement  of 
Assets  and  Liabilities. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  177 

Problem  27 

C.  W.  Brooke  began  business  July  1,  1921,  with  assets  and 
liabilities  consisting  of  accounts  receivable,  $8,500;  accounts 
payable,  $4,000;  merchandise,  $5,000;  cash,  $1,000.  On  De- 
cember 31,  1921,  his  assets  and  liabilities  consisted  of  cash,  $100; 
accounts  payable,  $6,000;  notes  payable,  $1,000;  furniture  and 
fixtures,  $800;  merchandise,  $12,500;  accounts  receivable,  $8,000; 
office  supplies,  $100.  During  the  period,  Brooke  had  invested 
$2,000  additional  and  had  withdrawn  at  different  times  sums 
amounting  to  $3,000.     His  books  are  kept  by  single  entry. 

Required: 

(a)  Prepare  a  statement  of  assets  and  liabilities  as  of  June 
30,  supplemented  by  a  statement  showing  what  the 
net  profit  or  loss  has  been  for  the  six  months 

(b)  Make  entry  or  entries  which  will  result  in  changing 
the  books  to  double  entry,  assuming  that  the  same  led- 
ger is  to  be  continued. 

Comments. — In  this  problem  it  will  be  necessary  to  find  the  net  worth 
at  the  beginning  as  well  as  at  the  end  of  the  period  named.  Instead  of 
setting  up  two  separate  statements  in  order  to  arrive  at  the  desired  results 
a  comparative  statement  of  assets  and  liabilities  wiU  be  prepared  with  col- 
umns at  the  right  showing  increase  and  decrease  of  the  various  items.  See 
Form  XXIII. 

Attention  is  called  to  the  fact  that  where  there  are  withdrawals  or  addi- 
tional investments  of  capital,  a  comparison  of  net  worth  at  beginning  and 
close  of  period  shows  increase  or  decrease  in  capital  and  not  net  profit  or 
net  loss.  Therefore,  if  capital  shows  an  increase,  withdrawals  will  be  added 
and  additional  investments  deducted  in  order  to  show  the  profit  or  loss  for 
the  period. 

After  ascertaining  the  profit  or  loss  an  entry  will  be  made  in  single  entry 
form  charging  or  crediting  the  proprietor  with  the  loss  or  profit  as  the  case 
may  be.  This  entry  will  result  in  adjusting  the  capital  account  in  the  ledger 
so  that  it  will  agree  with  the  capital  as  shown  by  the  financial  statement. 
In  order  to  change  the  books  to  double  entry  an  entry  is  then  made  in  double 
entry  form,  the  debits  consisting  of  the  assets  as  shown  by  the  financial 
statement  and  the  credits  consisting  of  the  liabilities  and  capital.  If  a  new 
ledger  is  to  be  used  this  entry  is  then  posted,  after  which  all  transactions 
may  be  entered  in  double  entry  form.  If  the  old  ledger  is  to  be  used,  only 
those  items  are  posted  that  do  not  appear  in  the  ledger,  the  others  being 
checked  off.  This  results  in  bringing  the  ledger  into  balance  and  the  pro- 
cedure may  thereafter  be  according  to  the  double  entry  method. 


178  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  28 

Gaylord  and  Laird  have  been  doing  business  as  equal  partners 
and  have  kept  their  books  by  single  entry.  They  wish  to  admit 
Davis  as  a  partner  and  have  their  books  kept  by  double  entry. 
Their  books  and  inventory  taken  show  the  following  assets  and 
liabilities  on  September  1,  1921:  Merchandise,  $9,240;  cash, 
$850;  notes  receivable,  $2,500;  real  estate,  $3,000;  accounts 
receivable,  $6,940;  store  fixtures,  $570;  Gaylord's  investment 
account,  credit,  $6,400;  Laird's  investment  account,  credit,  $5,390; 
accounts  payable,  $4,175;  bills  payable,  $975. 

Davis   is  admitted   and   invests   cash,    $3,000;   merchandise, 
$2,000;  bills  receivable,  $1,500. 

Required : 

(a)  Prepare  statement  of  assets  and  liabilities  and  show  net 
profit  and  each  partner's  net  worth 

(b)  Make  entries  necessary  to  open  set  of  double  entry  books 

(c)  Make  entry  showing  admission  of  Davis. 


Problem  29 

On  January  1,  1920,  J.  M.  Dickey  began  business  as  a  retail 
dry  goods  merchant.  His  capital  at  the  time  consisted  of 
merchandise,  $12,300;  cash,  $1,150;  furniture  and  fixtures,  $600. 
He  sold  most  of  his  goods  for  cash,  although  credit  was  extended 
in  certain  cases. 

The  books  were  kept  by  single  entry  and  consisted  of  a  ledger, 
journal,  and  cash  book. 

At  the  end  of  3  months,  Mr.  Dickey  desired  to  ascertain 
whether  he  was  making  any  money.  The  clerks  were  set  to  work 
taking  inventory,  and  the  bookkeeper  was  instructed  to  prepare 
a  list  of  outstanding  accounts  receivable  and  payable.  This 
produced  the  following  results: 


CLASSIFIED  PROBLEMS  AND   EXERCISES  179 

Merchandise  on  hand  $24  062  62 

Accounts  Receivable  2  165  74 

Accounts  Payable  15  203  21 

Cash  in  Bank  2  572  43 

Cash  in  Drawer  224  12 

Paid  invoices  showed  purchases  of  office  equipment  during 
the  period  amounting  to  $275. 

Invoices  have  been  received  and  entered  on  the  books  covering 
the  purchase  of  goods  amounting  to  $375.20,  which  goods  have 
not  yet  arrived. 

Feehng  the  need  of  more  working  capital,  Mr.  Dickey  sold  on 
February  10  certain  bonds  which  he  had  been  holding  as  invest- 
ments, realizing  thereon  $1,250,  which  amount  was  placed  in 
the  business. 

Required : 

(a)  Statement  or  statements  showing  the  assets  and  liabilities 
and  the  net  profit  or  loss  for  the  period 

(b)  Entry  to  accomplish  the  opening  of  a   set    of    double 
entry  books. 

Comments. — It  may  be  assumed  that  the  inventory  of  furniture  and 
fixtures  has  been  increased  by  the  purchases  during  the  period  to  the  extent  of 
$275.  The  value  of  the  goods  in  transit  has  been  entered  on  the  books  and  is 
included  in  the  Accounts  Payable  as  given  above,  but  not  in  the  Inventory. 
It  will,  therefore,  be  added  to  the  inventory  in  preparing  the  statements. 


Problem  30 

A  set  of  single  entry  books  for  1912  is  sent  to  you  with  an  order 
to  prepare  a  profit  and  loss  statement  for  the  year  and  a  balance 
sheet  at  December  31.     The  starting  capital  was  $34,500. 

January  1    December  31 

Accounts  Receivable  $26  500  00 

Accounts  Payable  7  500  00 

Merchandise  8  500  00 

Plant  and  Machinery  10  000  00 

Furniture  and  Fixtures  700  00 


$44  000  00 

9 

750 

00 

9 

500 

00 

10 

000 

00 

700 

00 

180  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

A  summary  of  cash  book  for  the  year  shows  as  follows : 

Received: 

Accounts  Receivable  $30  000  00 

Capital  paid  in  2  500  00 

Disbursed: 


Bank  Overdraft,  January  1  $  3  700  00 

Accounts  Payable  12  500  00 

General  Expense  5  000  00 

Wages  7  750  00 

Personal  Account  1  500  00 

Leaving  a  bank  account  of  $2,000,  and  currency  on  hand,  $50. 

Provide  5%  interest  on  capital,  disregarding  additions  during 
the  year  and  personal  drafts,  deducting  10%  for  plant  and  ma- 
chinery depreciation,  5%  for  furniture  and  fixtures,  and  5%  for 
bad  debt  reserve. 

Required : 

(a)  Comparative  statement  showing  net  profit  for  the  year 

(b)  Profit  and  loss  statement  for  the  year 

(c)  Balance  sheet  as  of  December  31,  1912 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — This  problem  not  only  calls  for  a  statement  showing  net 
profit,  but  also  for  a  detailed  profit  and  loss  statement.  A  number  of 
items  for  the  latter  must  be  found  by  deduction.  The  amount  of  net 
.sales  may  be  determined  by  adding  cash  collections  to  the  increase  in 
accounts  receivable,  and  net  purchases  by  adding  the  increase  in  accounts 
pajable  to  the  cash  payments  on  account  of  same.  It  may  be  assumed 
that  all  the  accounts  payable  are  the  result  of  merchandise  purchases. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 


181 


Problem  31 

T.  M.  Williams,  who  has  been  keeping  his  books  by  single 
entry,  desires  to  have  them  placed  upon  a  double  entry  basis,  and 
submits  to  you  the  following  data  concerning  his  business  for 
the  year  ended  September  30,  1922, 


T.  M.  Williams,  Investment 

T.  M.  Williams,  Drawings 

Cash  in  Bank  as  per  Bank  Statement 

Due  from  Customers 

Due  to  Creditors 

Notes  on  Hand 

Notes  Outstanding  (Bank  Loan) 

Land  and  Buildings  Owned 

Mortgage  Owing  on  Real  Estate 

Interest  Accrued  on  Mortgage 

Total  Purchases  for  the  year 

Total  Sales  for  the  year 

Inventory  of  Goods  on  Hand 

General  Expenses 

Rent  of  Office  Due  and  Unpaid 

Interest  Accrued  on  Notes  Receivable 

Interest  Prepaid  on  Notes  Payable  at  the  Bank 

Insurance  Premiums  Unexpired 


$25  000  00 
2  635  00 
18  500  00 
6  230  00 
8  625  00 
4  695  00 

2  500  00 
16  500  00 
12  500  00 

375  00 

42  840  00 

46  285  00 

8  240  00 

3  520  00 
150  00 

75  00 

45  00 

240  00 


Required : 

(a)  Statement  showing  profit  or  loss  for  the  year 

(b)  Detailed  profit  and  loss  statement 

(c)  Entries  to  change  to  double  entry,  new  books  to  be 
opened. 


Problem  32 

The  books  of  the  Butter,  Egg,  and  Cheese  Company,  with  an 
authorized  and  outstanding  capital  stock  issue  of  $25,000,  are 
kept  by  single  entry. 

It  annually  inventories  all  of  its  assets  and  liabilities,  and 
from  such  inventory  prepares  a  financial  statement.  At  De- 
cember 31,  1913,  this  inventory  is  as  follows: 


182  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Assets 

Office  cash  $  1   584  00 

Balance  Bank  A                                                  •  10  824  00 

Accounts  Receivable  29  521  00 

Ten  shares  stock  in  competing  company  1  000  00 

Plant  and  Equipment  64  938  00 

Merchandise  Inventory  21  737  00 

Prepaid  Expenses  5  081  00 

Liabilities 

Overdraft  Bank  B  $  5  003  00 

Accounts  Payable  19  747  00 

Mortgage  Payable  25  000  00 

Notes  Payable  20  000  00 

From  a  comparison  of  the  financial  statements  at  the  begin- 
ning and  end  of  year  you  find  that  the  above  item  of  Plant  and 
Equipment  is  stated  in  an  amount  less  by  $11,460  than  it  was 
at  the  beginning  of  the  year,  plus  additions  during  the  year. 

The  financial  statement  for  the  beginning  of  year  showed  a 
surplus  of  $35,703. 

From  your  analysis  of  the  disbursements  and  unpaid  accounts 
payable  at  beginning  and  end  of  year,  you  find  a  total  of  pur- 
chases amounting  to  $661,910,  and  expenses  for  salaries, 
wages,  supplies,  repairs,  etc.,  amounting  to  $120,115. 

The  purchases,  however,  included  $450  paid  out  for  John 
Smith,  an  employee,  for  which  he  had  not  reimbursed  the  com- 
pany; and  the  total  expenses  of  $120,115  included  $250  in  the 
hands  of  a  buyer  as  a  working  fund. 

The  inventory  of  merchandise  at  the  beginning  of  the  year 
was  $18,125,  and  of  prepaid  expense,  $2,653. 

There  was  canceled  on  the  customers'  ledger  during  the  year 
$3,206  of  uncollectible  accounts. 

There  was  paid  for  interest  and  discount  on  notes  payable 
$1,061,  and  for  interest  on  mortgage  $1,500. 

A  10%  dividend  was  declared  but  not  paid. 

Required : 

From  the  foregoing  prepare: 
(a)   Balance  sheet  as  at  December  31,  1913 
(1j)    Profit  and  loss  statement  exhibiting  net  sales,  cost  of 
sales,  and  gross  and  net  profit  for  the  year. 

{From  Ohio  C.  P.  A.  Examination) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  183 

Comments. — The  balance  sheet  called  for  will  be  the  usual  statement  of 
assets  and  liabihties.  The  dividend  declared  will  be  included  with  the 
liabilities.  The  net  worth  will  be  made  up  of  the  Capital  Stock  and  the 
present  surplus.  A  comparison  of  the  surplus  December  31  with  the  sur- 
plus at  beginning  of  year  represents  the  net  increase  in  capital  to  which 
must  be  added  the  dividends  to  find  the  profit  for  the  period. 

In  preparing  the  profit  and  loss  statement,  inasmuch  as  the  data  as  to 
sales  is  not  available,  it  will  be  necessary  to  use  the  net  profit  as  shown 
by  the  balance  sheet  as  a  basis,  and  work  back  to  the  sales. 

The  $11,460  shrinkage  in  plant  value  may  be  treated  as  depreciation. 

Care  must  be  exercised  in  arriving  at  the  miscellaneous  expenses  for  the 
year.  This  may  be  found  by  adding  the  amount  of  expenses  prepaid  at 
the  beginning  of  the  year  to  expenses  paid  during  the  year,  and  deducting 
expenses  prepaid  at  end  of  year. 


Problem  33 

The  following  statement  of  assets  and  liabilities  is  taken  from 
a  single  entry  system  of  books.  Prepare  a  balance  sheet  that 
will  exhibit  a  correct  view  of  the  net  worth  of  the  business. 

Cash  on  hand,  $10,000;  bonds  outstanding,  $50,000;  reserve  for  con- 
tingencies, $10,000;  plant  account,  $100,000;  reserve  for  bad  accounts, 
$2,000;  notes  receivable,  $50,000;  accounts  receivable,  $100,000.  Reserve 
for  unpaid  Federal  income  taxes,  $8,000;  dividends  declared  and  unpaid, 
$5,000;  reserve  for  shrinkage  of  inventory  values,  $6,000;  common  stock 
account,  $100,000;  reserve  for  amortization  of  bonds  outstanding,  $50,000; 
accounts  payable,  $5,000;  inventories  at  cost  or  market,  whichever  is 
lower,  $60,000;  treasury  stock  (100  shares,  par  value),  purchased  at  cost, 
$15,000;  depreciation  reserve,  $20,000;  notes  payable,  $20,000. 

Required : 

(a)  Balance  sheet,  statement  form.     Use  current  date 

(b)  Entry  necessary  to  change  the  books  to  double  entry. 

{From  North  Carolina  C.  P.  A.  Examination) 


184  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  34 

A  dispute  arises  between  two  partners  carrying  on  a  retail 
business  under  the  name  of  Levy  &  Mayer,  and  you  are  called  in 
to  adjust  the  accounts  between  them,  when  you  find  the  following 
conditions : 

The  books  have  been  kept  by  single  entry,  and  it  is  imprac- 
ticable to  go  over  the  accounts  in  sufficient  detail  to  complete 
the  double  entry.  It  is  three  years  since  the  firm  has  had  an 
accounting,  when  a  balance  sheet  was  prepared  (copy  of  which  is 
handed  to  you),  and  contains  the  following: 
Assets — December  31,  1918: 

Store  Fixtures  $15  000  00 

Leasehold  (5  years  to  run)  5  000  00 

Merchandise  on  Hand  35  000  00 

Customers'  Accounts  •  10  000  00 

Cash  on  Hand  and  in  Bank  12  500  00 

Prepaid  Expenses  -  2  500  00 

$80  000  00 
Liabilities: 

Accounts  Payable  $15  000  00 

A.  B.  Levy— Special  Loan  20  000  00 

A.  B.  Levy— Capital  30  000  00 

W.  K.  Mayer— Capital  15  000  00 

$80  000  00 

You  are  informed  that  Mr.  Levy's  loan  bears  interest  at  6% 
per  annum,  and  that  the  capital  accounts  are  to  be  credited 
with  interest  at  5%.  Also  that  Mr.  Mayer,  who  has  active 
charge  of  the  business,  is  to  receive  20%  of  the  profits  in  lieu  of 
other  salary,  the  remaining  80%  of  the  profits  to  be  divided  be- 
tween the  partners  in  proportion  to  the  capital  contributed. 

The  inventory  as  taken  as  at  December  31,  1921,  was  as  follows: 
Merchandise 

Good  condition  $50  000  00 

Old  styles  and  partly  soiled  7  500  00 

Obsolete  and  useless  1  500  00 

$59  000  00 

Customers'  Accounts 

Good  $12  500  00 

Doubtful  2  500  00 

Bad  1  000  00 

$16  000  00 

Accounts  Payable  $17  500  00 


$16  000  00 

15 

000 

00 

20 

000 

00 

$51 

000 

00 

CLASSIFIED   PROBLEMS  AND   EXERCISES  185 

You  also  found  that  on  June  30,  1920,  Mr.  A.  B.  Levy's  special 
loan  had  been  repaid  with  interest,  and  that  a  5%  loan  had  been 
obtained  from  the  bank  for  $10,000,  and  that  the  cash  in  bank 
and  on  hand  at  December  31,  1921,  was  $15,000,  while  the  bank 
interest  prepaid  was  $250,  and  insurance  premiums  prepaid 
amounted  to  $5,000.  The  partners'  drawings  on  account  of  profits 
and  interest  and  commissions  were  found  to  be  as  follows: 

A.  B.  Levy    W.  K.  Mayer 
In  1919  $12  000  00 

In  1920  15  000  00 

In  1921  18  000  00 

$45  OOP  00 

After  consultation  with  the  partners  it  was  agreed  to  write 
50%  off  the  value  of  the  "Old  Style  and  Partly  Soiled"  goods, 
and  off  the  Doubtful  Accounts  Receivable;  and  to  consider  the 
Bad  Accounts  and  Obsolete  and  Useless  materials  to  be  of  no  value. 

Required : 

(a)  A  statement  showing  how  you  arrive  at  the  profit  and 
loss  for  the  three  years,  showing  also  the  disposition 
thereof 

(b)  The  partners'  capital  accounts 

(c)  A  balance  sheet  at  December  31,  1921,  after  making 
the  necessary  adjustment  of  the  accounts. 

(From  Illinois  C.  P.  A.  Examination) 

Refer  to  page  237  for  questions  on  the  theory  of  single  entry  accounts. 


186  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  F — Special  Types  of  Statements 
Problem  35 

Charles  Cabell,  William  West,  and  Henry  Hart  form  a  part- 
nership for  the  purpose  of  engaging  in  the  manufacture  of  plug 
and  smoking  tobacco.  Cabell  invests  $75,000;  West,  $50,000; 
and  Hart,  $25,000.  Profits  or  losses  are  to  be  shared  as  follows: 
Cabell,  one-half;  West,  one-third;  Hart,  one-sxith.  Interest  is 
not  to  be  allowed  on  capital  nor  charged  on  drawings,  but  each 
partner's  drawings  in  any  one  year  are  not  to  exceed  one-tenth  of 
his  capital  in  the  business. 

At  the  end  of  their  first  fiscal  year  their  ledger  shows  the  fol- 
lowing balances: 


Charles  Cabell,  Capital  Account 

$75  000  00 

William  West,  Capital  Account 

50  000  00 

Henry  Hart,  Capital  Account 

25  000  00 

Charles  Cabell,  Withdrawal  Account 

$5  842  17 

William  West,  Withdrawal  Account 

4  179  16 

Henry  Hart,  Withdrawal  Account 

2  033  88 

Land  and  Buildings 

25  000  00 

Machinery 

11  026  92 

Furniture  and  Fixtures 

1  866  13 

Cash 

8  730  45 

Accounts  Receivable 

131  244  49 

Notes  Receivable 

4  999  97 

Accounts  Payable 

6  138  16 

Notes  Payable 

118  060  62 

Sales — Plug  Tobacco 

249  472  43 

Sales — -Smoking  Tobacco 

61  882  25 

Sales — Stems 

841  95 

Leaf  Tobacco 

200  044  57 

Licorice  and  Flavoring 

21  918  66 

Boxes 

8  572  10 

Labor 

25  182  47 

Stamps 

48  476  24 

Power,  Light,  and  Heat 

3  571  60 

Factory  p]xpense 

7  380  55 

ILauling 

1  451  30 

Salaries 

12  443  71 

Office  Expense 

4  228  87 

Insurance 

1  682  90 

Interest  and  Discount 

9  164  47 

Postage 

1  211  97 

Attorney's  Fees 

769  25 

CLASSIFIED   PROBLEMS  AND  EXERCISES  187 

Salesmen's  Salaries,  Ojmmissions,  etc.  $38  795  15 

Advertising  5  149  09 

Lost  Accounts  1  429  34 


$38 

189 

42 

11 

209 

36 

49 

128 

98 

1 

511 

68 

1 

073 

04 

43 

31 

$586  395  41  $586  395  41 

Ten  per  cent,  is  to  be  charged  off  from  Machinery  account, 
to  cover  depreciation,  and  a  reserve  equal  to  2  per  cent,  of 
the  Accounts  and  Bills  Receivable  is  to  be  created,  to  cover  pos- 
sible undeveloped  losses. 

The  unexpired  insurance  premiums  amount  to  $331.11. 

Inventories  are  as  follows: 

Finished  Goods 
Goods  in  Process 
Leaf  Tobacco 
Licorice  and  Flavoring 
Boxes 
Stems 

Required : 

(a)  Statement  of  cost  of  goods  manufactured 

(b)  Profit  and  loss  statement 

(c)  Balance  sheet — account  form 

(d)  Necessary  adjusting  entries. 

(From  Virginia  C.  P.  A.  Examination) 

Comments. — This  problem  illustrates  the  preparation  of  financial  state- 
ments for  a  type  of  manufacturing  business  somewhat  out  of  the  ordinary. 
The  essentials  of  the  statements  will  be  the  same  as  those  for  an  ordinary 
manufacturing  concern.  Include  in  the  manufacturing  statement  the 
elements  of  material,  labor,  and  factory  expense.  Material  in  this  instance 
consists  of  leaf  tobacco,  licorice  and  flavoring,  and  boxes.  The  boxes  in  this 
business  are  so  closely  associated  with  the  manufacturing  process  that  they 
will  be  included  under  that  head.  The  factory  expense  items  will  include 
all  those  expenses  usually  shown  under  this  heading.  While  the  item  of 
stamps,  meaning  revenue  stamps,  is  a  large  one  in  the  tobacco  business,  and 
is  closely  identified  with  the  manufacturing  process,  it  is  more  in  the  nature 
of  a  selling  expense  and  should  be  so  shown  in  the  profit  and  loss  statement. 

The  sales  accounts  should  be  entered  in  the  profit  and  loss  statement 
separately  and  totalled,  showing  total  sales. 

The  balance  sheet  presents  no  difiiculties. 


$26  450 

180  105 

$42  500 

35  000 

22  700 

150  000 

250  000 

225  000 

7  850 

188  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  36 

Spark  Plug  and  Auto  Supply,  Inc.,  is  the  manufacturer  of  a 
patented  spark  plug  and  is  also  dealer  in  automobile  supplies. 
From  the  following  trial  balance  (as  of  October  31,  1919),  and 
information  prepare  balance  sheet  and  profit  and  loss  statements 
showing  cost  of  manufacture  of  spark  plugs  and  gross  and  net 
profits  on  sales. 

Advertising 

Accounts  Receivable 

Accounts  Payable 

Bills  Receivable 

Bills  Payable  Trade  Creditors 

Bills  Payable  First  National  Bank 

Bonds  5%  1st  Mortgage 

Building  Factory  : 

Bad  Debts  Written  Off 

Capital  Stock: 

Common  Fully  Paid 

Authorized  $250,000 

Issued 
6%  Preferred: 

Authorized  and  Issued 
Dividend  Preferred  Stock 
Delivery  Expenses 
Delivery  Equipment  and  Trucks 
Directors'  Fees 
Discount  on  Sales 
Freight:  Raw  Materials 
Freight:  Automobile  Supplies 
Finished  Goods 

First  National  Bank  Current  Account 
General  Expenses 
Goods  in  Process 
Heat,  Light,  and  Power 
Interest  on  Bonds 
Insurance  and  Taxes:  Factory 
Labor:  Productive 
Labor:  Non-Productive 
Liberty  Bonds 
Loose  Tools 
Machinery  and  Plant 
Office  Furniture  and  Fixtures 
Payroll 
Patent  Rights 
Purchases:  Raw  Materials 


100  000 

300  000 

18  000 

7  140 

9  250 

2  500 

12  200 

12  050 

2  345 

34  320 

51  850 

14  770 

13  250 

22  200 

9  375 

17  400 

233  846 

99  444 

195  000 

15  270 

165  090 

1  200 

4  278 

30  000 

450  960 

CLASSIFIED  PROBLEMS  AND  EXERCISES  189 


Purchases:  Automobih  Supplies 

$141  690 

Repairs 

14  050 

Rent:  Warehouse 

3  875 

Reserve  for  Depreciation:  Buildings 

$20  500 

Reserve  for  Depreciation:  Machinery 

16  836 

Reserve  for  Bad  Debts 

8  000 

Real  estate:  Factory  Site 

150  000 

Shop  Supplies  and  Expenses 

15  560 

Surplus 

173  Oil 

Sales:  Spark  Plugs 

1  063  020 

Sales:  Automobile  Supplies 

137  595 

Salaries:  Office  and  General 

14  500 

Salaries:  Salesmen 

34  600 

Traveling  Expenses 

22  300 

$2  288  440 

$2  288  440 

Inventories,  November  1,  1918: 

Raw  materials 

$14  500 

Automobile  supplies 

22  450 

Inventories,  October  31,  1919: 

Raw  materials 

27  300 

Automobile  supplies 

19  200 

Finished  goods 

50  400 

Goods  in  process 

17  205 

Loose  tools 

10  500 

Reserve  for  bad  debts  to  be  adjusted  to  5%  of  open  accounts. 

Depreciation  for  the  12  months  ended  October  31,  to  be  al- 
lowed as  follows:  Factory  buildings,  2%;  Machinery,  5%;  De- 
livery equipment,  10%;  Furniture  and  fixtures,  $200. 

Disregard  fractional  parts  of  a  dollar. 

Patent  rights  expire  October  31,  1925. 

Advertising,  $950  applies  to  next  season. 

Taxes  on  factory  building  accrued,  $1,400. 

First  mortgage  5%  gold  bonds  are  a  first  charge  on  all  the 
assets  of  the  company.  Interest  payable  quarterly  on  the  first 
of  February,  May,  August,  and  November. 

Required : 

(a)  Necessary  adjusting  entries  in  skeleton  form 

(b)  Cost  of  goods  manufactured  statement 

(c)  Profit  and  loss  statement 

(d)  Balance  sheet. 

(From  American  Institute  Examination) 


190 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Comments. — In  solving  this  problem  no  attempt  need  be  made  to  allo- 
cate costs  between  spark  plugs  and  automobile  supplies.  Charge  the  manu- 
facturing expenses  to  spark  plugs  even  though  some  of  heat,  light,  etc.,  may 
be  used  in  the  sales  office.  Set  up  a  manufacturing  statement  showing  cost 
of  spark  plugs  made.  The  inventories  of  raw  materials  and  of  automobile 
supplies  as  of  November  1,  1918,  it  will  be  noted,  are  included  in  the  respec- 
tive purchase  accounts  as  shown  in  the  trial  balance. 

In  the  first  section  of  the  profit  and  loss  statement,  show  gross  profit  on 
spark  plugs.  Follow  this  with  a  section  showing  gross  profit  on  automobile 
supplies.  These  results  added  show  total  gross  profit,  from  which  will  be 
deducted  the  operating  expenses  in  the  usual  manner. 

The  credit  to  payroll,  $4,278,  may  be  assumed  to  be  wages  accrued  but 
not  due. 

Use  the  account  form  of  balance  sheet  and  show  reserves  as  deductions 
from  the  correlative  assets. 


Problem  37 

At  the  end  of  their  fiscal  year  you  are  given  the  following 
rial  balance  and  information  from  the  Gem  Corporation,  whicht 
owns  a  young  bearing  orange  grove. 

TRIAL  BALANCE 


December  31, 

1920 

Capital  Stock 

$100  000  00 

Gem  Orange  Grove 

$100  000 

00 

Cost — New  Trees  and  Setting  Out 

7 

000 

00 

Improvements  and  Betterments 

2 

500 

00 

Live  Stock 

1 

000 

00 

Wagons  and  Harness 

500 

00 

Tools  and  Implements 

1 

000 

00 

Field  Boxes 

600 

00 

Irrigating  Plant 

10 

000 

00 

Box  Material,  Paper,  Nails 

1 

800 

00 

Horse  Feed 

900 

00 

Fertilizer 

4 

500 

00 

Seeds 

500 

00 

Payrolls 

4 

000 

00 

Salaries 

7 

500 

00 

General  Expenses 

1 

500 

00 

Insurance 

50 

00 

Taxes 

100 

00 

CLASSIFIED  PROBLEMS  AXD   EXERCISES  191 


$800  00 

$12  000  00 

3  300 

00 

200 

00 

30  000  00 
5  750  00 

$147  750 
an: 

M 

$147  750  00 

$300  00 
650  00 

g  house 

400  00 
600  00 
300  00 
700  00 

laterest  • 

Sales  of  Fruit 
Prepaid  Freight 
Commissions  and  Brokerage 
Notes  Payable 
Surplus 


You  are  given  the  following  information: 

Inventories — 

Wagons  and  Harness 

Tools  and  Implements 

Field  Boxes,  used  for  bringing  fruit  to  packing  house 

Box  Material,  Paper,  Nails 

Horse  Feed 

Fertilizer 

Insurance,  one  policy  due  4/1,  1921. 

You  are  told  that  15,000  boxes  of  fruit  had  been  shipped  and 
that  the  amount  estimated  to  be  still  on  the  trees  was  9,000  boxes; 
that  about  30  acres  of  vegetables,  consisting  of  cabbages,  lettuce, 
and  cucumbers,  had  been  planted  between  the  rows  of  trees; 
that  the  fertilizer  for  the  year  before,  when  there  were  no  vege- 
tables, had  cost  $2,500  and  the  labor  pay  rolls  for  caring  for 
the  grove  for  that  year  had  been  $1,200.  You  find  that  $500 
charged  as  labor  pay  rolls  was  for  putting  up  fruit,  and  that  of  the 
$7,500  in  salaries,  only  $2,500  was  chargeable  to  this  year  and 
the  $5,000  was  for  former  period. 

Required : 

(a)  Balance  sheet  as  of  December  31,  1921 

(b)  Profit  and  loss  statement  for  the  fiscal  year 

(c)  Necessary    journal    entries    to     properly    adjust    the 

accounts. 

{From  Florida  C.  P.  A.  Examination) 

Comments. — For  this  type  of  business  it  is  difficult  to  prepare  statements 
that  will  in  themselves  adequately  set  forth  the  financial  position.  The 
fruit  on  the  trees  and  the  vegetables  in  the  ground  being  of  a  perishable 
nature  may  never  be  realized  upon.  On  the  other  hand,  they  may  be  sold 
so  as  to  produce  a  large  income.  The  statements  should,  therefore,  be  sup- 
plemented with  footnotes  and  comments  setting  forth  rather  fully  those 
things  bearing  directly  upon  the  financial  prospects  of  the  concern  that 
cannot  be  included  in  the  statements  themselves. 

The  cost  of  sales  in  this  case  is  represented  by  the  cost  to  produce  or  the 
cost  of  placing  the  fruit  in  the  packing  house. 


192  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  38 

The  following  is  the  trial  balance  of  the  X.  Y.  Z.  Coal  Mining 
Company  as  of  December  31,  1918: 


Cash 

$     5 

674 

50 

Breaker  and  Machinery 

145 

000 

00 

Office  Building 

5 

000 

00 

Blacksmith  Shop 

4 

000 

00 

Inside  Construction 

15 

675 

00 

Car  and  Mine  Rail  Account 

7 

534 

50 

Horses  and  Mules 

5 

600 

00 

Accounts  Receivable 

35 

112 

25 

Notes  Receivable 

10  000  00 

Capital  Stock — Common 

$  50  000  00 

Capital  Stock — Preferred 

100  000  00 

Coal  Sales 

257  890  00 

Accounts  Payable 

12  500  00 

Surplus 

17  709  35 

Depreciation  on  Buildings 

and  Machinery  Re- 

serve 

12  000  00 

Supplies 

8 

240 

00 

Payroll — Outside 

24 

701 

50 

Payroll — Inside 

110 

434 

25 

Salaries — Superintendent, 

etc. 

6 

000 

00 

Salaries — Office  Clerks 

•       4 

500 

00 

Office  Expense 

1 

147 

35 

General  Expense 

750 

00 

Claims  for  Injuries 

4 

000 

00 

Insurance  (Expires  July  1, 

1919) 

5 

500 

00 

Repairs  to  Buildings 

4 

075 

00 

Repairs  to  Construction 

3 

445 

00 

Barn  Expense 

1 

500 

00 

Selling  Expense 

4 

500 

00 

Royalty  Account 

30 

500 

00 

Water 

800 

00 

Fuel 

935 

00 

Timber  and  Props 

5  475  00 
$450  099  35 

$450  099  35 

The  total  output  for  the  year  was  132,300  tons. 

An  examination  of  the  books  and  accounts  shows  that  the 
following  charges  had  not  been  entered:  Horses  and  Mules, 
S2,000;  Car  and  Mine  Rail  account,  $1,450;  Claims  for  Injuries, 
$1,000.  During  the  year  the  bookkeeper,  through  error,  charged 
$3,415  to  Inside  Construction  instead  of  to  Inside  Pay  Roll. 

The  coal  is  mined  on  lease  that  averages  20  cents  per  ton. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  193 

The  inventory  is  #is  follows:  timber  and  props,  $1,500;  powder, 
$555;  oil,  etc.,  $175.  In  preparing  the  above  statements  allow- 
ance for  depreciation  on  buildings,  machinery,  and  other  proper- 
ties may  be  considered  at  the  rate  of  5%  per  annum. 

Required : 

(a)  Profit  and  loss  statement  for  the  fiscal  year 

(b)  Balance  sheet  as  of  December  31,  1918 

(c)  Cost  summary  showing  average  cost  and  net  profit  on 
each  ton  of  coal  sold. 

(From  New  York  C.  P.  A.  Examination) 

Comments. — The  expenses  of  mine  operations  in  digging,  hoisting,  and 
preparing  coal  for  shipment  may  be  hkened  to  the  manufacturing  costs  of 
the  ordinary  manufacturing  concern  in  preparing  articles  for  sale. 

The  company  leases  the  mine  on  a  royalty  basis  according  to  the  output 
for  the  year.  In  this  case  the  total  output  was  132,300  tons  on  a  lease 
averaging  20  cents  per  ton.  The  royalty  payments  will  be  considered  as  a 
part  of  the  cost  of  production.  Royalties  are  prepaid  to  the  extent  of 
$4,040  inasmuch  as  the  Royalty  account  is  charged  with  $30,500,  while 
the  charge  for  the  fiscal  year  is  $26,460. 

Depreciation  on  mine  properties  is  also  considered  a  part  of  cost  of 
production.  All  inside  costs  will  be  charged  to  production.  They  refer  to 
expenses  incurred  within  the  mine,  while  outside  costs  refer  to  expenses 
incurred  after  the  coal  is  brought  to  the  surface. 

Mines  are  usually  leased  for  a  definite  number  of  years,  and,  consequently, 
costs  of  construction  and  buildings  should  be  written  oflf  over  the  life  of 
the  lease.  In  this  case,  the  depreciation  being  5%,  the  life  of  the  lease 
may  be  assumed  to  be  20  years,  and  all  properties  will  be  written  down  on 
that  basis. 

The  insurance  may  be  assumed  to  be  for  one  year,  the  date  of  policy  not 
being  given,  and  that  one-half  of  it  is  unexpired. 

Since  no  mention  is  made  of  coal  in  stock,  it  may  be  assumed  that  the 
entire  output  has  been  disposed  of. 

Set  up  a  profit  and  loss  statement  showing  gross  profit  and  net  profit  in 
the  usual  manner.  Include  in  cost  of  sales  all  inside  expenses  such  as 
supplies,  inside  payroll,  repairs  to  construction,  barn  expenses,  royalties, 
water,  fuel,  timber,  and  props,  and  depreciation  of  construction,  cars,  and 
rails.     Outside  costs  will  be  carried  as  operating  charges. 

In  preparing  cost  summary,  show  production  cost,  outside  cost,  total 
cost,  and  net  profit  per  ton. 

The  balance  sheet  will  be  set  up  in  the  usual  form. 


194  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  39 

The  following  is  a  trial  balance  June  30,  1916,  before  closing, 
of  the  ledger  of  a  textile  mill. 


Land 

$  10  000 

00 

Buildings 

75  000  00 

Machinery 

119  138  73 

Tenements 

1  670 

66 

Finished  Goods  Inventory, 

1/1/16 

66  984 

43 

Stock  in  Process  Inventory, 

.  1/1/16 

57  042 

38 

Yarn 

259  882 

12 

Cash 

12  769 

19 

Petty  Cash 

106 

39 

Accounts  Receivable 

46  085 

68 

Mortgage  Receivable 

875 

00 

Labor 

25  979 

27 

Supplies 

2  974 

31 

Repairs 

956 

63 

Oils 

• 

50  84 

Coal 

1  443 

20 

Starch 

1  390 

00 

Water 

122 

65 

Finishing 

15  381 

54 

Brokerage 

660 

50 

Commission 

4  580 

67 

Discounts  Allowed 

1  246 

84 

Insurance 

679 

92 

Taxes 

1  502 

81 

General  Expense 

389  39 

Freight  and  Express 

974 

34 

Telephone  and  Telegraph 

68 

72 

Traveling  p]xpen.se 

274 

85 

Interest  Paid 

409 

80 

Discount  on  Notes  Payable 

1  408 

00 

Profit  and  Loss 

20  694 

80 

Dividends 

3  375 

00 

CJapital  Stock— Preferred  G%  Cumulative 

$100  000  00 

Capital  Stock — Common 

263  800  00 

Accounts  Payable 

40  864  56 

Notes  Payable 

187  500  00 

Cloth  Sales 

137  818  07 

Waste  Sales 

922  94 

Tenement  Rents  Received 

339  50 

Discount  Taken 

2  873  59 

$734  118 

66 

$734  118  66 

$104 

190 

24 

71 

242 

39 

135 

661 

63 

1 

000 

00 

900 

00 

1 

150 

00 

389 

41 

211 

11 

2 

051 

05 

600 

00 

402 

26 

100 

00 

100 

00 

817 

29 

460 

86 

CLASSIFIED  PROBLEMS  AND  EXERCISES  195 

Inventories  and  Iteips,  June  30,  1916: 

Finished  Goods 

Stock  in  Process 

Yarn 

Coal 

Starch 

Supplies 

Interest  Accrued  on  Notes  Payable 

Interest  Prepaid  on  Notes  Payable 

Wages  Accrued 

Unexpired  Insurance 

Prepaid  Taxes 

Prepaid  Water  Rents 

Bad  Debts 

Estimated  Discounts  to  be  taken  on  Accounts  Payable 

Estimated  Discounts  to  be  allowed  on  Accounts  Receivable 
Depreciation  rates  per  annum  are: 

Machinery  5% 

Tenements  3% 

Mill  Buildings  2% 

Depreciation  for  the  period  of  six  months  ending  December 
31,  1915,  was  not  put  upon  the  books.  No  additions  have  been 
made  to  the  fixed  assets  within  a  year. 

Estimated  discounts  on  the  accounts  receivable  and  payable 
were  not  put  upon  the  books  January  1,  1916;  these  were  respec- 
tively $400  and  $750. 

The  last  two  semi-annual  dividends  on  preferred  stock  are 
unpaid. 

Required : 

(a)  Balance  sheet  as  of  June  30,  1916 

(b)  Profit  and   loss   statement  for   six   months 

(c)  Necessary   adjusting  entries. 

{From  Massachusetts  C.  P.  A.  Examination.) 

Comments. — Include  in  cost  of  production  stock  in  process,  yam,  coal, 
starch,  supplies,  repairs,  oils,  water,  finishing,  etc.  A  combined  manufac- 
turing and  profit  and  loss  statement  may  be  prepared,  or  a  separate  cost 
of  goods  manufactured  statement  may  be  used  as  desired. 

The  problem  indicates  that  estimated  discounts  to  be  taken  on  accounts 
payable  should  be  taken  into  the  statements.  This  is  not  considered  best 
practice,  as  it  means  anticipating  profits  to  that  extent.  The  entry  to 
accomplish  this  would  be  to  charge  Estimated  Discounts  on  Accounts 
Payable  (asset)  and  credit  Purchase  Discounts  (income). 


196 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Problem  40 

The  following  trial  balance  of  the  B.  C.  Cotton  Company  is 
taken  from  the  books  after  inventories  and  deferred  charges  have 
been  posted.  The  accounts  are  ready  to  close  for  the  period. 
The  consigned  goods  account  has  been  inactive  for  six  months 
and  will  continue  so  for  the  present.  Prepare  statements  to 
show  for  the  quarter  ending  March  30,  1918,  total  manufacturing 
expenses,  cost  of  goods  made,  cost  of  goods  sold,  and  net  profit, 
and  submit  a  balance  sheet  as  of  March  30,  1918. 


Cloth 

Labor 

Light 

Royalties 

Oils 

Finishing 

Cash 

Liberty  Bonds 

Supplies 

Starch 

Fuel 

Water 

Freight  Inward 

Accounts  Receivable 

Accounts  Payable 

Notes  Payable 

Building  and  Machinery 

Tenements 

Insurance 

Taxes 

General  Expense 

Rents  Receivable 

Commissions 

Interest  Paid 

Discount  Taken 

Purchases,  Material 

Surplus 

Discount  Allowed 

Capital  Stock 

Waste  Sales 

Inventory,  Finished  Goods,  3-30 
Process,  3-30 
Materials,  3-30 
I*\iel,  3-30 
Starch,  3-30 
Supplies,  3-30 


7 

119 

1 

1 


$33  862  99 

132  72 

50  00 

38  62 

455  55 

126  06 

000  00 

276  06 

800  00 

1  455  99 

202  24 

1  353  99 

63  492  58 


341  378  14 


610  99 
350  00 
567  71 
542  88 

121  42 
539  90 


162  403  68 


899  50 


114  069  57 

31  464  02 

113  860  99 

1  250  00 

800  00 

1  300  00 


$268  337  28 


313  45 
225  000  00 


378  87 


4  016  26 

168  866  14 

362  500  00 
1  401  39 


CLASSIFIED  PROBLEMS  AND   EXERCISES  197 


Prepaid  Tuxes,  3-30 

$208  96 

Unexpired  Insurance,  3-30 

660  41 

Prepaid  Interest,  3-30 

5  100  00 

Consigned  Goods,  3-30 

14  438  42 
$1  030  813  39 

$1  030  813  39 

Inventories  of  finished  goods  have  been  credited  to  Cloth' 
Account  and  inventories  of  goods  in  process  and  materials  to 
Purchase  Account. 

Inventories,  January  1,  1918: 

Finished  goods,  January  1,  1918  .     $132  833  85 

Goods  in  process,  January  1,  1918  22  258  01 

Materials,  January  1,  1918  143  566  55 

Required : 

(a)  Balance  sheet  as  of  March  30,  1918 

(b)  Cost  of  goods  manufactured  statement  for  three  months 

(c)  Profit  and  loss  statement. 

(From  American  iTistitute  Examination) 

Comments. — In  order  to  prepare  the  statements  as  desired,  it  will  be 
necessary  to  find  sales  and  purchases  for  the  period.  This  will  be  done  by 
eliminating  the  inventories  from  the  cloth  and  purchase  accounts. 

Cloth  account  as  per  trial  balance  xxxxx 

Add — Inventory,  Finished  Goods,  1/1/18  xxxx 

Total  xxxxx 

Less — Inventory,  Finished  Goods,  3/30/18  xxxx 

Sales  of  Cloth  for  period  xxxxx 

The  purchases  would  be  handled  just  the  reverse.  Add  Goods  in  Process, 
March  30,  1918,  and  Inventory  of  Material,  March  30,  1918,  to  the  trial 
balance  figure  for  purchases,  and  from  this  total  deduct  the  Goods  in  Process, 
January  1,  1918,  and  Inventory  of  Material,  January  1,  1918.  The  result 
will  be  purchases  for  the  period. 

The  Waste  Sales  may  be  shown  as  other  income  in  the  profit  and  loss 
statement.  Consigned  Goods  will  be  shown  as  a  current  asset  in  the  balance 
sheet. 


198  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  41 

From  the  following  statement  of  facts  set  up  the  trial  balance 
of  the  Broad  Exchange  Bank,  December  31, 1918,  after  closing, 
and  prepare  therefrom  a  condensed  statement  of  condition  as  of 
the  same  date: 

Due  from  banks,  $74,975;  time  certificates  of  deposit,  $10,000;  cashier's 
cheques,  $496,349.75;  rediscounts,  $400,000;  customers'  loans,  $500,000; 
bills  purchased,  $550,000;  exchanges  for  clearing  house,  $320,000;  due  to 
banks,  $834,000;  certified  cheques,  $12,500;  cash,  $956,750;  demand  cer- 
tificates of  deposit,  $2,500;  transit  department,  $100,000;  on  deposit  with 
Federal  Reserve  Bank,  New  York,  $48,500;  demand  loans,  $125,000;  time 
loans,  $80,000;  bonds  and  mortgages  owned,  $100,000;  coupon  deposits, 
$3,750;  on  deposit  with  National  City  Bank,  $53,062.50;  depositors,  $765,910; 
banking  house,  $200,000;  furniture  and  fixtures,  $25,000;  capital  stock 
issued  and  outstanding,  $500,000;  securities  owned,  $96,812.50;  surplus, 
$201,090.25;  accrued  interest  receivable,  $1,075:  interest  purchased,  $125; 
unearned  discount,  $5,200. 

Required : 

(a)  Trial  balance  as  of  December  31,   1918 

(b)  Condensed  statement  of  condition  as  of  December  31, 
1918. 

{From  American  Institute  Examination) 

Comments. — See  Model  Form  XLIV  for  condensed  statement  of  condition. 


Problem  42 

The  following  trial  balances  have  been  taken  from  the  books 
of  George  T.  Wallace  at  the  close  of  business  on  December  31, 
1920,  and  June  30,  1921,  respectively: 

December  31,  1920  June  30,  1921 

George  T.  Wallace,  Capital  $41  076  54  $41  076  54 

George    T.    Wallace, 

Current  $2  000  00  $3  500  00 

Cash  11  977  05  12  303  25 

Sales  99  486  05  121  794  75 

Sales     Returns    and 

Allowances  210  00  195  00 


CLASSIFIED   PROBLEMS  AND   EXERCISES  199 


Purchases                * 

$39  822  82 

$40  963  25 

Purchase  Returns 

$650  00 

$630  00 

Real       Estate       and 

Buildings 

30 

913 

27 

30 

083 

27 

Tools 

1 

507 

04 

1 

903 

23 

Machinery     and 

Equipment 

12 

091 

07 

19  093 

09 

Dehvery  Equipment 

1 

890 

00 

2 

240 

00 

Accounts  Receivable 

39 

027 

09 

51 

270 

00 

Notes  Receivable 

1 

850 

00 

1 

500 

00 

Accounts  Payable 

19  760 

00 

18  892  10 

Notes  Payable 

17  000 

00 

19  000  00 

Insurance  Premiums 

225 

00 

275 

00 

Insurance  Prepaid 

210 

00 

160 

00 

Taxes 

345 

00 

690 

00 

Heat  and  Power 

1 

024 

00 

1 

165 

00 

Salesmen's  Expenses 

2 

496 

00 

1 

890 

00 

Salesmen's  Salaries 

4 

000 

00 

3 

600 

00 

Office  Expenses 

250 

00 

125 

00 

Travehng  Expenses 

360 

CO 

394 

00 

Loss  on  Bad  Accounts 

125 

00 

210 

00 

Interest  Charges 

96 

00 

75  00 

Delivery  Expenses 

329 

00 

356 

00 

Office  Salaries 

2 

600 

00 

2 

500 

00 

Freight  Inward 

1 

560 

00 

1 

482 

00 

Inventory,  6/30/20 

23 

064 

25 

Inventory,  12/31/20 

25 

420 

30 

$177  972  r.0   $177  972  59  $201  393  39  $201  393  39 
Inventory,  Juno  30,  1921,  $20,  219.25. 

Required: 

(a)  Comparative     balance     sheet — statement     form     with 
current  assets  first 

(b)  Comparative  profit  and  loss  statement  for  the  period. 

Comments. — See  Model  Forms  XX  and  XXIII. 


200  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  43 

The  following  trial  balances  have  been  taken  from  the  ledger 
of  Thatcher  and  Jones  after  all  adjusting  entries  were  posted: 


June  30,  1920 

September  30, 

1920 

Cash                                $ 

1 

600  00 

$  1 

350  00 

Goods   on   Hand    (end 

of  period) 

5 

400  00 

5 

600  00 

Purchases  (cost  of  sales) 

5 

890  00 

7 

480  00 

Purchase  Discounts 

$ 

135 

00 

$ 

265  00 

Freight  Inward 

1 

165  20 

1 

543  20 

Sales 

13 

350 

00 

13 

200  00 

Sales  Discounts 

72  10 

104  30 

Sales  Returns 

9  10 

3  46 

General  Administra- 

tive Expenses 

954  36 

768  90 

SeUing  Expenses 

456  78 

314  67 

Interest  Earnings 

9 

00 

10  10 

Loss  on  Bad  Debts 

35  60 

29  30 

Office  Equipment 

544  50 

610  50 

Reserve  for  Deprecia- 

tion of  Office  Equip- 

ment 

27  CO 

54  00 

Store  Fixtures 

250  00 

260  00 

Reserve  for  Depreica- 

tion  of  Store  Fixtures 

50 

00 

75  00 

Dehvery  Equipment 

540  00 

760  00 

Reserve  for  Deprecia- 

tion  of   Delivery 

, 

Equipment 

54 

00 

108  00 

Notes  Receivable 

1 

200  00 

1 

530  00 

Notes  Payable 

1 

4o5 

00 

1 

206  80 

Reserve  for  Bad  Debts 

35 

10 

65  70 

Insurance  Unexpired 

75  00 

60  00 

Office  Supplies 

20  00 

18  00 

Wages  Accrued 

140 

00 

150  00 

Accounts  Payable 

3 

500 

00 

3 

250  00 

Accounts  Receivable 

4 

510  00 

2 

850  60 

A.  J.  Thatcher,  Capital 

2 

500 

00 

2 

500  00 

A.  J.  Thatcher,  Current 

500  00 

50  00 

E.  F.  Jones,  Capital 

2 

500 

00 

2 

500  00 

E.  F.  Jones,  Current 

542  40 

$23 

51  67 
3S4  60 

$23 

765  10 

$23 

765 

JO 

$23  384  60 

Required : 

(a)  Comparative  balance  sheet — statement  form 

(b)  Comparative  profit  and  loss  statement. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  201 

,  Problem  44 

A  public  library  presents  the  following  trial  balance  of  its 
ledger: 

Allen  Fund  for  Purchase  of  Historic  Literature 

Smith  Fund  for  Purchase  of  Civil  War  Literature 

Receipts  from  Lost  Books 

Membership  Annual  Fees 

Income  from  Allen  Fund 

Income  from  Smith  Fund 

Salaries  and  Sundry  Expenses 

Rent 

Purchase  of  Historic  Literature 

Purchase  of  Civil  War  Literature 

Cash  in  Bank 

Securities  Allen  Fund 

Securities  Smith  Fund 


$  92  000 

18  000 

100 

14  500 

3  680 

540 

8  640 

6  400 

3  400 

450 

4  930 

90  000 

15  000 

$128  820  $128  820 

Required : 

Prepare  a  report  showing  the  financial  status  of  the  library. 

{From  New  York  C.  P.  A.  Examination) 


202  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  G — Analysis  and  Interpretation  of  Financial  Statements 

Problem  45 

The  balance  sheet  of  the  Simplex  Manufacturing  Company  for 
the  year  ending  September  30,  1920,  contains  the  following  items : 

Total  Assets  •  $1  341  510  27 

Total  Liabilities  406  117  26 

Reserve  for  Depreciation  of  Plant  and  Machinery  45  260  00 

Reserve  for  Loss  on  Bad  Debts  8  239  64 

Reserve  for  Bond  Sinking  Fund  44  968  73 

Reserve  for  Extension  of  Plant  43  738  20 

Reserve  for  Insurance  19  621   14 

Capital  Stock  Issued  and  Outstanding  (par  $100)  600  000  00 

Capital  Surplus,  Proceeds  of  Sale  of  Treasury  Stock  130  000  00 

Profit  and  Loss  Surplus  43  565  30 

Required : 

Calculate  the  book  value  of  the  capital  stock  outstanding 
Show  in  detail  how  you  arrive  at  your  figure. 

Comments. — The  book  value  of  stock  is  found  by  dividing  the  net  worth 
of  the  concern  by  the  number  of  shares  of  stock  outstanding,  in  this  problem, 
6,000  shares.  The  net  worth  may  be  found  in  two  ways,  either  by  deduct- 
ing the  total  liabilities  and  valuation  reserves  from  the  total  assets,  or  by 
adding  together  the  net  worth  or  capital  items.  The  essential  thing  is  to 
be  able  to  distinguish  valuation  reserves  from  proprietorship  or  capital 
reserves,  the  latter  being  nothing  more  or  less  than  surplus  under  another 
name. 


CLASSIFIED   PROBLEMS  AND  EXERCISES  203 

Problem  46 

The  financial  statements  of  the  Acme  Manufacturing  Company 
contain  the  folio v/ing  items  as  of  December  31,  1920. 

7%  Preferred  Stock,  par  $100,  issued  and  outstanding  $2  000  000 
Common    Stock,    par   $100,    issued;    including   5,000   shares 

treasury  stock  donated  to  secure  additional  working  capital  2  000  000 

Balance  of  Surplus,  January  1,  1920  750  000 

Net  Profit  for  the  year  1920  (Bond  Interest  deducted)  950  000 

First  Mortgage  6%  Gold  Bonds  outstanding  1  200  000 

From  the  above  information  compute  the  following,  indicating 
all  processes  and  amounts  used  to  arrive  at  your  results. 

Required: 

(a)  Rate  of  net  profit  earned  on  all  capital  stock  out- 
standing 

(b)  Rate  of  net  profit  earned  available  for  common  stock 
outstanding 

(c)  Rate  of  net  profit  earned  on  invested  capital 

(d)  Ratio   of  net  earnings  to   interest   on   bonds 

(e)  Earnings  per  share  on  common  stock  outstanding 

(f)  Book  value  per  share  of  common  stock  outstanding 

(g)  Book  value  per  share  of  common  stock  assuming  that 
the  treasury  stock  had  been  sold  at  $75  and  the 
proceeds  credited  to  Capital  Surplus 

(h)  Assuming  that  the  asset  Plant  was  brought  on  the  books 
at  an  inflated  value  in  order  to  cover  an  issue  of  the 
common  stock  later  donated  to  the  corporation,  and 
that  when  the  stock  was  sold  at  $75  the  proceeds  were 
credited  to  the  asset  account  instead  of  to  capital 
surplus,  would  your  answer  be  different  from  that 
given  in  (g)? 


204 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Problem  47 

JAMES  MANUFACTURING  COMPANY 

Balance  Sheet  as  at  December  31,  1920 


Cash 

Notes  Receivable 

Accounts  Receivable 

Subscriptions  Receivable 

Patents 

Plant,  Machinery,  and  Equipment 

Total  Assets 

Liabilities 
Accounts  Payable 
Notes  Payable 
Mortgage  Payable 
Capital  Stock  Subscribed 
Treasury  Stock  Donated 
Capital  Stock: 
Common: 

Authorized,  1,000  shares  no  par  value 

Unissued         200  shares  no  par  value 

Issued  800  shares  no  par  value  and  sold  at 

$10  a  share  $  8  000 

Less —  300  shares  no  par  value  in  treasury 

@$10  3  000 


Preferred: 

Authorized,  400  shares 


$100 


Unissued       100  shares  @  $100 
Issued  300  shares  @  $100 

Less —  10  shares  in  treasury  bought  back  at 

par 
Surplus: 

Balance  as  of  January  1,  1920 
Less — Dividend  declared  12/15/20  and  prepaid 
12/25/20  in  unissued  preferred  stock 
Total  Liabilities,  Capital  and  Surplus 


Required : 

(a)  Amount  of  working  capital 

(b)  Ratio  of  current  assets  to  current  liabilities 

(c)  Book  value  per  share  of  the  common  stock 

(d)  Rate  of  stock  dividend  on  capital  invested 


5  000 


$40  000 
10  000 

$30  000 

1  000 

29  000 

$21  000 

10  000 

11  000 

$80  000 

CLASSIFIED   PROBLEMS  AND   EXERCISES  205 

Problem  48 

The  following  balance  sheet  has  been  published  by  the  X 
Company  as  showing  the  condition  of  the  business  after  the  sale 
of  $10,000,000  of  the  first  preferred  stock  and  all  of  the  second 
preferred  stock  noted  therein,  A  prospective  purchaser  of  some 
of  the  stock  asks  you  to  tell  him  book  values  of  each  class  of 
stock,  amounts  of  net  tangible  and  net  quick  assets  for  the  appro- 
priate class  or  classes  of  stock,  and  to  advise  him  whether  to 
purchase  the  first  preferred  at  95  or  the  common  at  90. 

Assets 

Land,  Buildings,  Machinery  $  7  000  000 

Good-Will  and  Patents  8  000  000 

Investments  500  000 

Cash  10  715  000 

Inventories  13  000  000 

Accounts  and  Notes  Receivable  10  000  000 

Other  Current  Assets  450  000 

Deferred  Charges  335  OOP 

$50  000  OOP 
Liabilities  ' 

Capital  Stock: 

7%  Cumulative  First  Preferred  $15  000  000 

7%  Cumulative  Second  Preferred  5  000  000 

Common  Stock,  75,000  shares  of  no  par  value  6  000  000 

Notes  and  Accounts  Payable  13  000  000 

Dividends  Payable  52  500 

1919  Federal  Taxes  1  000  000 

Reserve  for  Depreciation  3  447  500 

Surplus  6  500  OOP 

$50  OOP  OOP 

The  par  value  of  the  preferred  stock  shares  is  $100.  It 
is  expected  that  a  quarterly  dividend  of  $2  per  share  will  be 
paid  upon  the  common  stock. 

In  your  report,  mention  such  matters  as  it  would  seem  advis- 
able to  know  in  addition  to  those  contained  in  the  statement 
given  above. 

Required: 

(a)  Book  value  per  share  of  each  class  of  stock 

(b)  The  amount  of  working  capital 

(c)  The  amount  received  per  share  for  common  stock  issued 

to  date. 

(From  Wisconsin  C.  P.  A.  Examination) 


206  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  49 

The  stockholders  of  a  trading  corporation  decide  to  sell  their 
business  to  a  competitor,  and  an  agreement  is  made  whereby  the 
purchaser  is  to  pay  for  the  stock,  the  value  shown  by  the  books 
at  the  close  of  business  December  31,  1914,  plus  a  value  for  Good- 
will to  be  determined  by  you  as  accountant  upon  the  basis  of 
the  earnings  for  five  years  preceding  December  31,  1914. 

The  balance  sheet  at  the  beginning  of  business  January  1, 
1914,  was  as  follows: 

Assets 

Cash  $37  227  61 

Accounts  Receivable  10  026  76 

Special  Accounts  Receivable  1  819  40 

Notes  Receivable  635  00 

Inventories  36  473  22 

Unexpired  Insurance  699  44 

Furniture  and  Fixtures  $24  028  36 

Less— Reserve  14  978  01         9  050  35 

Horse  and  Wagon  Account  2  928  16 

$98  859  94 
Liabilities 

Capital  Stock  $50  000  00 

Surplus  48  859  94 

$98  859  94 


The  following  trial  balance  was  taken  from  the  books  Decem- 
ber 31,  1914: 

Accounts  Receivable 

Advertising 

Notes  Receivable 

Capital  Stock 

Cash 

Claims  and  Allowances 

Commission 

Accounts  Payable 

Discount  Purchases 

Discount  Sales 

Ccneral  Expense  Account 

General  lOxpense 

Fuel  and  Light 

Furniture  and  Fixtures 

Furniture  and  Fixtures  Repairs 

Freight  and  Cartage  In 

Freight  and  Cartage  Out 

Horse  and  Wagon  Account 


13  672 

21 

578 

10 

700  00 

$  50  000  00 

22  394  81 

234 

69 

60 

63 

4  556  68 

4  165  98 

1  218 

50 

4  442 

33 

1  595 

69 

2  484 

96 

24  112 

46 

337 

79 

4  409 

62 

429 

68 

2  928 

16 

CLASSIFIED   PROBLEMS  AND   EXERCISES 


207 


Horse  and  Wagon  Repa-rs 

$         169  68 

Horse  Feed 

421   18 

Interest 

$183  01 

Inventory,  January  1,  1914 

36  473  22 

Insurance 

2  020  30 

Labor 

24  -473  80 

Out  of  Balance  (Suspense  Account) 

13  68 

Printing  and  Stationery 

634  16 

Profit  and  Loss 

176  14 

Purchases 

215  686  51 

Rent 

4  000  00 

Reserve  for  Depreciation 

14  978  01 

Salary 

9  059  14 

Sales 

258  101  22 

Special  Accounts 

2  132  29 

Special  Accounts 

714  79 

Surplus 

44  795  96 

Taxes 

100  29 

Traveling  Expense 

2  535  63 

$377  495  65 

«377  495  65 

The  inventories  of  December  31,  1914,  were  Merchandise, 
$53,134.65;  Unexpired  Insurance,  $975.96.  10%  depreciation 
is  to  be  allowed  upon  the  book  value  of  the  Horse  and  Wagon 
account  and  the  Furniture  and  Fixtures  account.  The  net 
earnings  for  the  four  years  were  as  follows: 

1910  $3  132  74 

1911  4  728  93 

1912  6  241  24 

1913  5  876  29 

Dividends  have  been  paid  each  year  at  the  rate  of  6%. 
Required: 

(a)  Profit  and  loss  statement  for  the  year  1914 

(b)  Determine  the  value  of  the  good- will  and  explain  your 
method 

(c)  Balance  sheet  of  December  31,  1914 

(d)  What  is  the  book  value  of  the  stock,  per  share?     Total 
number  of  shares  is  500. 

(From  Massachusetts  C.  P.  A.  Examination) 
Comments. — Set  up  the  financial  statements  in  the  usual  manner. 
A  suggested  method  of  valuing  the  good-will  is  to  find  the  average  profits 

for  the  past  5  years.     Capitalize  this  amount  at  a  normal  rate  and  compare 

this  capitalization  with  the  net  worth  of  the  corporation. 


208  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  50 

THE  SEWARD  COMPANY 

Balance  Sheet — December  31,  1920 

•  Assets 

Real  Estate,  Buildings,  Plant,   Machinery,  Equipment  and 

Good-Will  $2  000  000 

Investments  in  Stocks  and  Bonds  at  Cost   (market  value 

$100,000)  150  000 

Current  Assets: 


Inventories: 

Raw  Material  (market  value)  $230  000 
Finished  Stock  at  Selling  Prices,  less  Discount 

5  per  cent.  200  000 

Consignment  (selling  value)  50  000 

Supplies  (estimated)  200  000 

$680  000 

Accounts  and  Bills  Receivable,  including  Advances 

to  Employes  225  000 

Stock  in  Treasurj'  (unissued): 

Preferred  $150  000 

Common  237  000 

Investments  in  Subsidiary  Companies 

Cash  and  Miscellaneous  Items 


Liabilities 
Capital  Stock: 

Preferred  Stock 

Common  Stock 
Bonds  and  Bankers'  Loans 

Reserves: 

For  Depreciation 

Less — Renewal  P^xpenditures  written  off 

Balance  (debit) 

For  Bad  Debts 

Other  Contingencies 

Current  Liabilities: 

Accounts  Payable 

Other  Indebtedness 

Accrued  Items 
Surplus 


387  000 

425  000 

50  000 

1 

767  000 

$3 

917  000 

$1 

000  000 

1 

800  000 
625  000 

$110  000 

135  000 

$  25  000 

5  000 

50  000 

30  000 

$115  000 

231  000 

52  000 

398  000 
64  000 

$3^ 

917  000 

CLASSIFIED   PROBLEMS  AND   EXERCISES  209 

Required: 

(a)  Write  a  brief  criticism  of  the  balance  sheet  from  the 
standpoint  of  form  and  arrangement  and  of  the  com- 
pany's financial  condition 

(b)  Assuming  the  markup  on  finished  goods  to  be  50%  you 
are  asked  to  recast  the  statement  using  the  form  that  in 
your  opinion  will  best  set  forth  the  condition  of  the 
business. 

(Adapted  from  Alassachusetts  C.  P.  A.  Examination) 

Comments. — The  balance  sheet  should  be  entirely  rewritten  in  accord^- 
ance  with  good  practice.  Make  such  adjustments  as  can  be  made  from  the 
information  at  hand  and  call  attention  to  those  that  cannot  be  made. 
The  finished  stock  and  consignments  should  be  written  down  to  cost,  the 
adjustment  being  made  through  surplus.  The  reserve  for  contingencies 
may  be  used  to  offset  any  deficit  that  may  be  shown. 


Problem  51 
THE  B.  F.  GOODRICH  COMPANY 

Consolidated  Balance  Sheet 
December  31,  19 — 

Assets 

Capital  Assets: 

Real  Estate,  Buildings,  Plant,  Machinery  and  Sundry 

Equipment  less  Reserve  for  Depreciation  $12  679  151  72 

Patents  583  650  00 

Good-Will  ^  57  798  000  00 

$71  060  801  72 
Investments  in  Other  Companies,  etc.  1   197  058  00 

Societe  Francaise  B.  F.  Goodrich — representing  the  net 

investment  at  December  31,  191-  570  987  32 

20,587  Shares  of  7%   Cumulative  Preferred  Stock  in 

Treasury  at  Par  2  058  700  00 


210 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Current  Assets: 

Inventory   of   Raw   Materials,   Partly 

Manufactured  and  Finished  Stock       $12  614  926  67 

Trade  Accounts  Receivable  after  de- 
ducting Reserve  to  cover  Doubtful 
Accounts,  Discounts,  and  Allowances 

Other  Accounts  Receivable 

Bills  Receivable 

Cash  in  Banks  and  on  Hand 
Deferred  Charges  to  Future  Operations: 

Prepaid  Insurance,  Interest,  Taxes,  etc. 

Liabilities 
Capital  Stock: 
600,000  shares  of  Common  Stock  of 

$100  each 
300,000  shares  of  7%  Cumulative  Pre- 
ferred Stock  of  $100  each 

(Redeemable  in  case  of  dissolution, 
liquidation,  merger  or  consolidation 
at  $125  per  share) 
Current  Liabilities: 
Bills  Payable 
Accounts  Payable 
Sundry  Accrued  Liabilities 
Reserve  for  Contingencies 
Surplus 

Balance  at  December  31,  191- 

Add— Net  Profit  for  the  year  ending 
December  31,  191-,  as  per  annexed 
statement 


4  699 

938 

10 

777 

266 

85 

586 

274 

70 

723 

053 

50  $19 

401  459 
222  950 

82 

01 

$94 

511 

956 

87 

$60  000  000  00 
30  000  000  00  $90  000  000  00 


799 
489 
217 


736  24 
031  53 
206  47 


3  505  974  24 
300  000  00 


$806  235  24 


Deduct  —  Dividends 
Paid.  7%  on  Cumu- 
lative Preferred  Stock 
for  the  year  ending 
December  31,  191-  $2  100  000 
1  %  on  Common  Stock  600  OOP 

Contingent  Liability 
(Societe  Francaise  B.  F.  Goodrich) 

Bankers  loans  secured  by  assets  of 
the  French  Company  and  by  the  guar- 
antee of  the  B.  F.  Goodrich  Company 
(a  New  York  Corporation) 


2  599  747  39 
$  3  405  982  63 


2  700  000  00  705  982  63 


$573  000  00 


$94  511  956  87 


CLASSIFIED   PROBLEMS  AND  EXERCISES  211 

THE  B.  F.  GOODRICH  COMPANY 

Profit  and  Loss  Account 

For  the  Year  Ending  December  31,  19- 
Net  Sales                                                                                         $39  509  346  52 
Deduct — Manufacturing,  Selling,  and  General  Admini- 
strative Expenses                                                                     36  451  233  98 
Profit  from  Operations                                                      $  3  058  112  54 
Add — Miscellaneous  Income                                                            491  316  72 

S  3  549  429  26 

Deduct — Reduction  of  Treasury  Preferred 

Stock  from  Cost  to  Par  Value  $168  417  03 

Provision  for  Depreciation  541  358  09 

Interest  on  Bills  Payable  239  906  75  949  681  87 

Net  Profit  Carried  to  Balance  Sheet  $  2  599  747  39 

Required: 

(a)  Define  capital  assets;  contingent  liability;  consolidated 
balance  sheet;  7%  cumulative  stock 

(b)  How  was  the  treasury  stock  preferred  acquired?  What 
entry  pertaining  to  this  stock  was  made  during  the  year? 

(c)  What  is  the  ratio  between  current  assets  and  current 
liabilities? 

(d)  What,  in  your  opinion,  is  included  under  "Other  Ac- 
counts Receivable"  and  "Sundry  Accrued  Liabilities?" 

(e)  Would  there  appear  to  be  any  relation  between  the 
amoimt  of  good- will  and  the  issue  of  common  stock? 
What  proportion  of  the  total  assets  is  represented  by 
good-will? 

(f)  What  is  the  book  value  of  the  common  stock? 

(g)  Do  you  approve  of  the  amount  of  reserves  for  deprecia- 
tion and  for  doubtful  accounts  not  being  shown? 

(h)  Was  the  dividend  paid  on  the  common  stock  earned 
during  the  current  year? 


9 

142  074  71 

309  051  18 

1 

121  266  10 

3 

322  489  23 

212  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  52 
THE  AMERICAN  SUGAR  REFINING  COMPANY 

and  Its  Constituent  Companies 

Condensed  General  Balance  Sheet,  December  31,  1917 

Assets 

Real  Estate  and  Plants,  including  Refineries,  Warehouses, 
Cooperage,  Railroads,  Tank  Cars,  Wharves,  and  Sta- 
bles, with  their  machinery  and  equipment,  and  timber 
and  other  lands  owned  in  fee  or  through  ownership  of 
the  entire  Capital  Stock  of  constituent  companies,  at 
cost  less  depreciation  $  45  931   123  93 

Investments,  General  24  782  540  68 

Investments,  Insurance  Fund  9  500  000  00 

Investments,  Pension  Fund  1  750  000  00 

Merchandise  and  SuppUes,  including  raw  and  refined 
sugar,  syrup,  material  in  process  of  manufacturing 
boneblack,  cooperage,  and  other  stock  and  suppUes  on 
hand 

Prepaid  Accounts,  Insurance,  Taxes,  Etc. 

Loans 

Accounts  Receivable 

Accrued  Income,  Interest  earned,  and  dividends  declared 

but  not  yet  collected  1  047  043  91 

Cash  on  hand,  with  Trust  Companies,  Banks  and  Short 

Term  Loans  40  493  252  19 

$137  398  841  93 
Liabilities 
Capital  Stock; 

Preferred  $45  000  000 

Common  45  000  000  $  90  000  000  00 

Sundry  Reserves: 

For  Insurance  $  9  500  000  00 

For  Pension  Fund  1  750  000  00 

For  Improvement  of  Plants  3  367  514  84 

For  Trade  Mark  Advertising  2  000  000  00 

For  Contingencies  823  647  99       17  441   162  83 

Accounts,  Taxes,  and  Loans  Payable  8  097  115  45 

Dividends  declared,  payable  January  2,  1918,  and  former 

dividends  unclaimed  1  599  036  75 

Surplus: 

Balance,  December  31,  1916  $18  348  711  69 

Add — Amount  transferred  in  1917  as 

stated  in    Income   and   Profit  and 

Loss  Statement  1  912  815  21       20  261  526  90 

$137  398  841  93 


CLASSIFIED  PROBLEMS  AND   EXERCISES 


213 


'      Profit  and  Loss  Statement    • 
Comparative  Statement  years  1915,  1916  and  1917 


Credits: 
Profit  from  Operations 
Interest  on  Loans  and  Deposits 
Income  from  Investments 
Net  Profit  from  Investments 

Amount  of  Appropriations  for  Im- 
provement of  Plants  expended  in 
new  construction,  and  offset  in 
Depreciation  on  Plant  and  Equip- 
ment below 

Amount  deducted  from  surplus  of 
former  years 


1915 
2  991  465  39 
880  609  09 
2  312  646  21 


1916 
9  756  379  42 

792  990  70 
2  905  737  10 

248  336  34 


S  6  184  720  69  t   13  703  443 


1917 

$   10  055  291  41 

1  006  002  25 

3  129  948  70 

21  554  85 

t  U  212  787  21 


685  470  76 


701  992  24 


$     7  572  183  69 

$  13 

703 

443 

-56 

$  14  212 

787  21 

Debits: 

Depreciation,    Renewal    and    Re- 

placement 

$         790  304  71 

$     2 

000 

000 

00 

$     2  000 

000  00 

Sundry  Reserves 

481  906  98 

3 

383 

562 

09 

4  000 

000  00 

Dividends  Declared 

6  299  972  00 

6 

299 

972  00 

6  299 

972  00 

$     7  572  183  69 

$  11 

683 

534 

09 

$  12  299 

972  00 

Amount  added  to  Surplus  of  former 

years 

2 

019 

909 

47 

1  912 
$  14  212 

815  21 

$     7  572  183  69 

$  13 

703 

443 

_56 

787  21 

Balance  Sheet 

Assets: 

Real  Estate  and  Plants 

$  48  763  560  47 

$  47  246 

442 

89 

$  45  931 

123  93 

Investments,  General 

22  577  772  00 

23 

972 

036 

34 

24  782 

540  68 

Investments,  Insurance  Fund 

8  000  000  00 

9 

000 

000 

00 

9  500 

000  00 

Investments,  Pension  Fund 

1  000  000  00 

1 

250 

000 

00 

1  750 

000  00 

Merchandise  &  Supplies 

16  963  384  52 

18 

654 

839 

97 

9  142 

074  71 

Prepaid  Accounts 

252  834  04 

1 

527 

643 

32 

309 

051   18 

Loans 

3  803  274  90 

1 

222 

193 

00 

1   121 

266  10 

Accounts  Receivable 

4  607  398  09 

3 

833 

259 

72 

3  322 

489  23 

Accrued  Income 

468  844  67 

555 

907 

03 

1  047 

043  91 

Cash 

15  624  806  32 

22  717 
$129  979 

453 
775 

53 
80 

40  493 

252  19 

$122  061  875  01 

$137  398  841  93 

Liabilities : 

Capital  Stock 

$  90  000  000  00 

$  90  000  000  00 

$  90  000  000  00 

Sundry  Reserves 

10  137  705  62 

13 

475 

267 

87 

17  441 

162  83 

Accounts  &  Loans  Payable 

3  999  462  92 

6 

555 

963 

24 

8  097 

115  45 

Dividends  declared  &  outstanding 

.1  595  904  25 

1 

599 

833 

00 

1  599 

036  75 

Surplus 

16  328  802  22 

18 

348 

711 

69 

20  261 

526  90 

$122  061   875  01 

$129  979  775  80 

$137  398  841  93 

214  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Questions 

(a)  Give  two  examples  of  a  funded  reserve  in  th(!  above  I)alance  sheet. 

(b)  What  amount  of  current  assets  does  the  balance  sheet  show?  What 
is  the  ratio  between  current  assets  and  liabilities? 

(c)  Ascertain  what  dividends  were  declared  by  this  company  payable  on 
January  2,  1918,  and  after  doing  so  determine  the  amount  of  unclaimed 
dividends. 

(d)  How  do  you  explain  the  item  among  the  assets,  "Accrued  income, 
interest  earned,  and  dividends  declared  hut  not  yet  collected? " 

(e)  After  allowing  for  the  dividend  paid  on  the  preferred  stock  during 
the  year,  what  were  the  earnings  per  share  on  the  common  stock? 

(f)  What  evidences  of  strength  do  you  observe  in  the  statements  of  this 
company? 

(g)  Determine  the  book  value  of  the  common  stock. 

(h)  Explain  the  nature  of  the  Reserve  for  Trade  Mark  Advertising. 
Give  the  probable  function  of  the  account. 

(i)  The  Reserve  for  Pension  Fund  and  the  corresponding  Pension  Fund 
have  been  increased  $500,000  during  the  year.  By  what  entries  was  this 
brought  about? 

(j)  The  report  of  the  company  states  that  the  number  of  stockholders 
has  increased  during  the  year  from  18,949  to  19,758  and  that  the  average 
holdings  have  decreased  from  47  K  shares  to  45 1/^  shares.  Is  this  change 
to  be  regarded  in  a  favorable  or  an  unfavorable  light? 

(k)  From  a  study  of  the  comparative  figures  for  1915,  1916  and  1917, 
write  a  full  report  upon  the  growth  and  development  of  the  company  during 
these  years  as  revealed  by  such  figures. 

(1)  During  the  first  Liberty  Loan  Campaign,  the  company  financed  the 
purchase  of  Liberty  Bonds  by  employees  to  a  total  amount  of  $471,300. 
representing  subscriptions  by  6,876  employees.  The  company  is  being 
reimbursed  at  the  rate  of  $1  per  week  for  each  $50  bond.  Make  complete 
recommendations  with  reference  to  handling  this  matter  through  the  ac- 
counting records,  and  the  manner  of  showing  same  on  this  balance  sheet. 

(m)  Explain  this  quotation  from  the  detailed  report:  "Betterments  have 
been  capitalized  to  the  extent  of  $866,323.56." 

(n)  The  total  business  of  the  company  for  the  year  exceeded  $200,000,000. 
Wliat  is  your  opinion  of  the  rate  of  return  shown  by  the  profit  from  opera- 
tions of  $100,055,291.41  as  compared  with  rate  which  ordinarily  prevails 
in  a  manufacturing  concern? 


CLASSIFIED  PROBLEMS  AND   EXERCISES  215 

Problem  53 

PITTSBURGH  PLATE  GLASS  COMPANY 

Statement  of  Assets  and  Liabilities 

December  31,  1920 

Assets  Assets  Liabilities 

Investment  $35  968  524  36 

Merchandise  S  9  218  910  92 

Material  and  Working  Accounts  7  018  286  33 

Bills  and  Accounts  Receivable  11  561  073  22 

Bonds.  Sundry  211   547  50 

Bonds,  Liberty  Loan  502   127  73 

Cash  and  Cash  Items  2  472  680  48 

Quick  Assets  30  984  626  18 

Treasury  Stock  6  894  91 

Liabilities 


Capital  Stock  Authorized  $37  500  000  00 

Less— Unissued  Capital  Stock  622  400  00  $36  877  600  00 

Fractional  Shares  Issued  50  240  00 

Sundry  Credits: 

Bills  Payable  None 

Accounts  Payable  (Current)  $  3  132  797  82  3  132  797  82 

Insurance  Fund  261  981  69 

Reserve  for  Possible  Inventory  Deflation.  4  850  000  00 

Reserve  for  Estimated  Federal  Income  and  Excess  Profits 

Taxes  Payable  in  1921  6  600  000  00 

Profit  and  Loss 


Surplus,  January  1,  1920  $19  491  615  68 

Surplus  paid  in  by  Paint,  Varnish,  Dry 

Color,  Brush,  and  Chemical  Divisions  804  905  61 

Earnings  for  Year  1920 

after  above  reserves 

for  Taxes  and  Inven- 
tory Deflation  $10  858  095  80 
Less — Depreciation 

and  Obsolescence  2  262  180  01         8  595  915  79 

$28  892  437  08 
Less — Common  Stock 

and  premium  issued 

and   paid    to   retire 

Preferred  Stock  $       197  916  92 

Federal     Income    and 

Excess  Profits  Taxes 

on  1919  Profits  2  896  490  22 

Cash  Dividends  3  355  964  00 

Stock  Dividends  6  154  640  00     $12  605  Oil   14 

Balance  in  Surplus  Accounts  12/31/20  16  287  425  94 

$66  960  045  45  $66  960  045  45 


216  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Questions 

(a)  Net  earnings  of  $8,595,915.79  are  equivalent  to  what  per  cent  on 
capital  stock?  on  invested  capital? 

(b)  Investment  account  shows  over  $35,000,000.  How  may  such  a  large 
amount  be  accounted  for? 

(c)  Federal  taxes  for  two  full  years  amounting  to  $8,396,490.22  have 
been  deducted  from  profits  and  surplus  account.  How  is  this  accounted 
for? 

(d)  Explain  the  nature  of  Reserve  for  Pos.sible  Inventory  Deflation. 

(e)  What  do  you  assume  to  be  included  under  title  (a)  Material  and 
Working  Accounts;  (b)  Merchandise. 

(f)  What  entry  was  made  on  books  for  item  "Depreciation  and  Obso- 
lescence?" 

(g)  What  is  the  working  capital  ratio? 

(h)  Explain  the  item  "Fractional  Shares  Issued." 
(i)  Find  book  value  of  capital  stock, 
(j)  How  was  Treasury  Stock  acquired? 
(k)  Set  up  the  balance  sheet  in  better  form. 


Problem  54 
EASTMAN  KODAK  COMPANY  OF  NEW  JERSEY 

and  Subsidiary  Companies 

Combined  Balance  Sheet 

December  31,  19— 


Liabilities 
Capital  Stock: 

Authorized: 

100,000  shares  Preferred  Stock  $10  000  000  GO 

250,000  shares  Common  Stock  of 

$100  each  25  000  000  00 

$35  000  000  00 

Issued: 

Preferred  Stock  $6  165  700  00 

Common  Stock      $19  586  200  00 

Less— In  Treasury  63  400  00       19  522  800  00     $25  688  500  GO 


CLASSIFIED  PROBLEMS  AND  EXERCISES  217 

Current  Liabilities:    ' 

Accounts  Payable  $1  511  010  27 

Dividends  Declared 
Quarterly  Dividends 
(Payable  1-1-19): 
Preferred  Stock      $         92  485  50 
Common  Stock  488  070  00  580  555  50       $2  091  565  77 

Welfare  Fund  Reserve  1  025  520  91 

Other  Funds  and  Reserves: 

For  Capital  Purposes  $469  196  53 
For  Renewal  of  Plant  3  250  000  00 
For  Depreciation  2  858  518  81 
For  Contingencies  360  137  34         6  937  852  68 

Surplus  as  per  Annexed  Account  17  507  435  47 

$53  250  874~83 

Assets 
Cost   of   Properties    (including   Real   Estate,    Buildings, 
Plant,  Machinery,  Patents  and  Good-Will,  and  Invest- 
ments in  Other  Photographic  Companies)  $32  014  370  90 

Deferred  Charges  to  Profit  and  Loss  Account 

(Insurance,  Taxes,  etc..  Paid  in  advance)  139  651  67 

Welfare  Fund  Assets:  1  025  520  91 

Current  Assets : 

Merchandise,  Materials  and  Supplies 

on  hand  $  9  733  650  12 

Accounts  and  Bills  Receivable  (net)  3  317  703  12 

Marketable  Bonds  and  Stock  1  385  913  99 

(Market  Value,  $1,606,912.50) 

Cash: 

On  deposit  at  In- 
terest      $  4  228  072  87 
At  Banks  on  Cur- 
.  rent  Accounts 

and  on  hand     1  405  991  25    5  634  064  12   20  071  331  35 

$53  250  874  83 

Surplus  Account 

Balance  at  December  31,  19—  $12  186  287  52 

Less— Transferred  to  Welfare  Fund  500  000  00 

$11  686  287  52 


218  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

EASTMAN  KODAK  COMPANY  OF  NEW  JERSEY 

and  Subsidiary  Companies 

Combined  Balance  Sheet — Continued 

December  31,  19 — 

Surplus  Account — Continued 

Net  Profits  of  Combined  Companies  for 

year  ending  December  31,  19—  $13  999  047  45 

Deduct  — Dividends  Paid 
and  Accrued: 
Four  quarterly  divi- 
dends of  1K%  each 
on  Preferred  Stock  $369  942  00 
Four  dividends  of 
23^%  each  and  ex- 
traDividends 
amounting  to  30% 

on  Common  Stock     7  807  957  50       8  177  899  50 
Balance,  Amount  to  Surplus  5  821   147  95 

$17  507  435^ 

Questions 

(a)  The  above  balance  sheet  as  it  appeared  in  the  original  report  was 
prepared  in  double  page  form,  liabilities  being  shown  on  the  left-hand  page 
and  assets  on  the  right. 

With  what  practice  does  this  conform?  What  reasons  exist  for  such  an 
arrangement? 

(]))  Explain  the  method  illustrated  of  showing  Treasury  Stock  Common. 

(c)  Define  funded  reserve.  What  example  of  a  funded  reserve  appears 
in  this  balance  sheet? 

(d)  What  do  you  assume  to  be  the  purpose  of  the  following  reserves? 

For  Capital  Purposes 
For  Contingencies 

(e)  Assuming  that  the  preferred  stockholders  do  not  share  in  the  distri- 
bution of  earnings  in  excess  of  the  established  rate  of  6%,  what  is  the  book 
value  of  the  common  stock  now  outstanding? 

(f)  Do  you  think  the  reserve  for  depreciation  is  excessive? 

(g)  The  auditor's  certificate  states  that  "full  provision  has  been  made 
for  bad  and  doubtful  accounts  receivable." 

What  evidence,  if  any,  is  there  in  the  balance  sheet  that  this  has  been 
done? 

(h)  What  were  the  earnings  per  share  of  the  Common  Stock  for  the  year 
in  excess  of  preferred  dividend  requirements? 

(i)  What  criticism,  if  any,  have  j'ou  to  ofifer  in  regard  to  the  order  of 
arrangement  of  assets  and  liabilities? 


CLASSIFIED   PROBLEMS  AND   EXERCISES  219 

Problem  55 

ARMOUR  AND  COMPAN Y 

Financial  Statement  for  Fiscal  Year  ending  October  28,  1916 

Assets 

Capital  Assets: 

Lands,    Building,    Plants,    Machin- 
ery, etc.  $  54  116  062  70 
Refrigerator  and  Other  Cars  3  913  677  00 
Car  Trust  Agreement  4  848  416  00 
Investment  in  Allied  Companies            28  152  522  31     $  91  030  678  01 

Current  Assets: 

Inventories    of    Product,    Material 

and  Supplies  $  57  120  917  52 
Miscellaneous  Marketable  Invest- 
ments 11  091  429  64 
Bills  Receivable  5  354  017  00 
Accounts  Receivable  56  282  021  37 
Cash  on  Hand  and  in  Banks  7  893  408  79       137  742  694  32 

$228  773  372  33 

Liabilities 
Current  Liabilities: 

Bills  Payable  $  27  865  600  00 

Accounts  Payable  13  155  831  29     $  41  021  431  29 

Reserve  (for  bond  interest)  918  824  31 

Capital  Liabilities: 

Bonds  50  000  000  00 

Capital  Stock  "  $100  000  000  00 

Surplus  36  833  116  73       136  833  116  73 

Net  Capital  Investment  $228  773  372  33 

A  dividend  of  $2,000,000  was  paid  January  15,  1916,  out  of  1915  earnings. 


220  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

ARMOUR  AND  COMPANY 
Income  and  Expenditures 

Income 

Net  Profit  on  Manufacture  and  Sales  after  deducting 
charges  for  repairs  and  deprecnation,  including  also 
earnings  of  subsidiary  allied  companies  $27  162  164  48 

Expenditures 

Interest  on  Bonds  $  1  809  783  51 

Interest  on  Borrowed  Money  1  925  424  67 

Administrative  Expense  1  960  602  26 

Taxes,  Insurance,  etc.  1  366  354  04 

Net  Earnings  $20  256  000  00 

Less— Donation  to  Pension  Fund  156  000  00     20  100  000  00 

$27  162  164  48 

A  dividend  of  2%  has  been  declared  payable  January  15,  1917. 

Questions 

(a)  The  net  earnings  of  $20,100,000  are  equivalent  to  what  per  cent  on 
the  capital  stock?  on  the  invested  capital? 

(b)  The  gross  sales  for  the  year  amounted  to  $525,000,000.  The  net 
profit  for  the  year  is  equivalent  to  how  many  cents  on  each  dollar  of  sales? 

(c)  The  report  states  that  a  dividend  of  2%  has  been  declared  payable 
January  15.     Do  you  find  such  a  dividend  stated  among  the  liabilities? 

(d)  Explain  the  exact  nature  of  the  following  assets: 

Car  Trust  Agreement. 
Investments  in  Allied  Companies. 
Miscellaneous  Marketable  Investments. 

(e)  What  is  meant  by  the  item:  Reserve  for  Bond  Interest? 

(f)  What  is  the  book  value  of  the  stock? 

(g)  Re:  Pension  Fund 

Begun  by  an  Endowment  Fund  of  $1,000,000  being  appropriated  by  the 
company  in  1911.  The  company  makes  an  annual  contribution  to  the 
fund  (this  year  $156,000  or  about  1H%  oi  the  capital  stock)  and  employees 
receiving  from  $520  to  $7,500  per  year  contribute  3%  of  their  annual  sal- 
aries. This  is  deducted  from  the  June  salarj*.  Employees  leaving  the 
service  l>efore  retirement  are  entitled  to  a  refund. 

Officers  and  employees  may  be  pensioned,  men  at  57  and  women  at  50, 
if  preceded  l)y  20  j'ears  of  continuous  service.  Compulsory  retirement  age 
is  (),"). 

Pensions  are  computed  at  2%  of  the  salary  at  retirement,  multiplied  by 
numl)er  of  years  of  continuous  service. 

In  case  of  death  after  15  years  of  continuous  service,  the  widow  or  de- 
pendents of  the  employee  receive  a  pension  computed  on  a  basis  of  one 
per  cent  for  each  j^ear's  service;  if  such  decedents  have  participated  in  the 


CLASSIFIED   PROBLEMS  AND   EXERCISES  221 

Pension  Fund,  his  cfopendents  are  entitled  to  a  return  of  all  amounts  paid 
into  the  fund  plus  compound  interest  at  4%. 

You  are  asked  to  recommend  a  method  of  recording  on  the  books  all  trans- 
actions pertaining  to  the  Pension  Fund;  also  to  prescribe  any  special  books 
pertaining  thereto  which  you  deem  necessary. 


Problem  56 
F.  W.  WOOLWORTH  COMPANY 

Figures  of  operations  for  the  year  ended  December  31,  1921,  with  com- 
parisons, are  given  below: 

1921  1920 

Net  Sales  $147  654  647     $140  918  981 

Net  Income  *  flS  792  960  9  775  251 

Preferred  Dividends  770  000  857  500 

Balance 
Common  Dividends 

Surplus 
Previous  Surplus 

Total  Surplus 
Stock  Dividend 
Preferred  Stock  Premium 

Profit  and  Loss  Surplus  $  22  038  950    $  14  361  365 

*  After  depreciation,  Federal  taxes,  etc. 

t  After  $1,743,170  depreciation  in  inventories  and  reserve  of  $3,500,000 
for  Federal  taxes,  contingencies,  etc. 

The  general  balance  sheet  as  of  December  31,  1921,  compares  as  follows: 

Assets 


%  13  022  960 

5  200  000 

s 

7  822 
14  361 

960 
365 

s 

22  184  325 
145  375 

$ 

8 

917 

751 

4 

600  000 

$ 

4 

317 

751 

25 

144 

435 

$  29  462 

186 

15 

000 

000 

lOD  821 

1921 

1920 

Real  Estate,  Buildings,  etc. 

$  20  427  644 

$  16  424  127 

Good-Will 

50  000  000 

50  000  000 

Treasury  Stock 

472  045 

2  611  920 

Securities 

1  330  834 

1  340  903 

Mortgage  Receivable 

74  250 

82  000 

Inventories 

16  194  461 

18  500  668 

Accounts  Receivable 

703  033 

468  308 

Cash 

11  050  799 

4  267  345 

Prepayments 

83  910 

148  383 

Dividends  Accrued 

10  803 

45  185 

Deferred  Charges 

6  517  020 

5  405  132 

Totals 

$106  864  799 

$  99  293  971 

222  ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Liabilities 

Preferred  Stock 

$  10  000  000 

$  12  000  000 

Common  Stock 

65  000  000 

65  000  000 

Mortgage  Payable 

1  914  500 

1  524  500 

Accounts  Payable 

661  965 

831  988 

Dividends  Payable 

175  000 

210  000 

Depreciation  Reserve 

3  474  384 

2  966  117 

Reserve  for  Taxes,  etc. 

3  500  000  . 

2  300  000 

Employment  Benefit  Fund 

100  000 

100  000 

Surplus 

22  038  950 

14  361  366 

Totals  $106  864  799     $  99  293  971 

Analyze  the  above  figures  for  the  purpose  of  determining  the 
following : 

(a)  Net  earnings  applicable  to  common  dividends  as  compared  with 
1920. 

(b)  Comparison  of  cash  position  of  1920  and  1921. 

(c)  Comparison  of  inventories  considering  that  there  has  been  an  increase 
in  gross  business. 

(d)  Comparison  of  working  capital. 

(e)  Net  profits  per  dollar  of  sales. 

(f)  Reduction  in  preferred  stock. 

(g)  Write  a  brief  report  summarizing  the  above  findings  and  discussing 
the  position  of  the  company  at  the  close  of  the  year  as  compared  with 
the  beginning. 


Problem  57 
UNITED  FRUIT  COMPANY 

The  figures  of  operations  for  the  year  ended  December  31,  1921, 
with  comparisons,  follow: 


1921 

$18  827  979 

1  751  856 

$20  579  836 

8^05 

$20  570  930 

1920 
$43  661  238 

954  035 

$44  615  274 

25  187 

$44  590  087 

Decrease 

Net  earning 
Other  income 

Total  net 
Interest  charges 

$24  833  259 

♦797  821 

$24  035  438 

16  281 

Balance 

$24  019  156 

CLASSIFIED  PROBLEMS  AND  EXERCISES 


223 


Estate  taxes  • 

Net  profit 
Dividends 

Surplus 
Previous  surplus 

Total  profit  and  loss  surplus 
Direct  charges  to  profit  and  loss 
balance 

Balance 
Direct  credits  to  profit  and  loss 
Balance  credit  of  profit  and  loss  $34  955  774 

*  Increase.  t  Capital  stock  distribution. 


3  595 

167 

$16  975 
8  000 

763 
000 

$  8  975 

25  980 

763 
010 

$34  955  774 

$34  955 

774 

15  581  779 

11  986  612 

$29  008  307 

$12  032  543 

6  518  990 

*1  481  010 

$22  489  317 

$13  513  553 

49  109  722 

23  129  712 

$71  599  040 

$36  643  265 

t50  000  000 

50  000  000 

$21  499  040 

t$13  356  734 

4  380  970 

4  380  970 

$25  980  010    $  8  975  763 


The  condensed  balance  sheet  as  of  December  31,   1921,  as 
compared  with  December  31,  1920,  is  given  below 


Assets 


Property: 


Tropical  Lands  and  Equipment 
Domestic  and  European  Property 
Steamships  (tonnage  239,297) 
Steamships  under  Construction 
Totals 


1921 

88  454  682 
8  812  417 

23  189  097 
1  608  660 


1920 

78  197  713 
8  729  118 

19  203  833 
6  729  766 


$122  064  857  $112  860  431 


Investments: 

United    States    and    British    Government 

Securities 
Other  Investments 


$9  227  553 
6  057  265 


$13  742  183 
5  982  593 


$  15  284  818  $  19  724  777 


Set  aside  for  payment  of  4J^%  debentures 
Current  Assets: 

Cash 

Notes  Receivable 

Accounts  Receivable 

Sugar  and  Molasses  Stock 
Totals 
Deferred  Assets: 

Loans  to  Planters 

Other  Items 
Totals 
Deferred  Debits 
Transit  Items 

Total  Assets 


$11  176  326 

28  952 

5  298  614 

1  240  467 


382  316 

$20  392  302 

213  044 

7  349  066 

3  105  264 


$  17  744  361     $  31  059  477 


$1  120  707 

1  345  194 

2  465  902 
979  692 

1  773  141 


$842  437 
972  546 


1  814  984 

503  795 

1  338  343 


$160  312  775     $167  684  126 


224 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Liabilities 

Capital  Stock: 

United  Fruit  Company 

$100  000  000 

$  50  000  000 

♦Capital  Stock  Distribution 

50  000  000 

Fund  Debt: 

4^%  Deb.  1923 

$         195  500 

4M%  Deb.  1925 

131  500 

Total 

$        327  000 

Current  Liabilities: 

Drafts  Payable 

$1  070  511 

$1  998  931 

Accounts  Payable 

3  375  945 

5  514  748 

Dividend  Payable 

2  000  000 

2  000  000 

Totals 

$     6  446  457 

$     9  513  680 

Deferred  Liabilities: 

Costa  Rica  Ry.  Material  Account 

S243  125 

$243  125 

Costa  Rica  Ry.  Replacement 

Res. 

363  520 

331  738 

Rentals  Accrued 

260  483 

162  024 

Other  Deferred  Liabilities 

424  802 

246  373 

Totals 

$     1  291  930 

$     1  083  262 

Deferred  Credits 

2  046  652 

815  380 

Surplus: 

Steamship  Construction  Reserve 

2  312  068 

9  102  237 

Tax  Reserve 

12  630  726 

20  862  555 

Insurance  Reserve 

629  165 

Profit  and  Loss 

34  955  774 

25  980  010 

Totals 

$  50  527  734 

$  55  944  803 

Total  Liabilities 

160  312  775 

167  684  126 

*  Issued  January  15,  1921,  to  stockholders  of  record  December  20,  1920. 


Questions 

(a)  Compare  the  earnings  per  share  of  1921  with  1920. 

(b)  Compare  ratio  of  current  assets  to  current  liabilities  for  1921  and 
1920. 

(c)  Can  you  determine  from  the  statement  to  what  extent  the  company 
has  reduced  its  operating  costs? 

(d)  What  was  the  market  value  of  the  stock  on  December  31,   1921? 
The  book  value? 

(e)  When  and  how  were  the  4>^%  Debentures  of  1923  and  1925  paid  off? 

(f)  Distinguish  between  deferred  assets  and  deferred  debits;  deferred 
liabilities  and  deferred  credits. 

(g)  Explain  "Capital  stock  distribution  $50,000,000." 
(h)   Define  "Transit  Items." 


CLASSIFIED   PROBLEMS  AND  EXERCISES  225 

•  Problem  58 

A  corporation  has  the  following  items  in  its  balance  sheet: 
Accounts  Payable,  Accounts  Receivable,  Cash,  Capital  Stock, 
Expense  Accrued  not  due.  Expense  Paid  in  Advance,  Good- Will, 
Merchandise,  Machinery,  Notes  Payable,  Patents,  Real  Estate, 
Reserve  for  Depreciation  of  Plant,  Surplus,  Trade  Marks,  and 
Treasury  Stock. 

You  are  asked  to  figure  the  value  of  the  stock.  State  which 
items  you  would  take  to  get  the  gross,  and  which  items  you  would 
deduct  from  the  gross  to  get  the  net  amount,  and  how  you  would 
obtain  the  value  of  each  share. 

{Massachusetts  C.  P.  A.) 


Problem  59 

The  ledger  of  a  manufacturing  corporation  contains  a  Fire 
Insurance  Fund  account.  The  treasurer  submits,  for  credit 
purposes,  a  statement  showing,  as  "Surplus  Funds,"  the  sum  of 
the  amount  at  the  credit  of  the  Insurance  Fund  account,  and  of 
the  amount  at  the  credit  of  Surplus  account.  State  (a)  your 
comments  thereon ;  and  (b)  the  reasons  supporting  your  answer. 

{Massachusetts  C.  P.  A.) 


226 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Problem  60 


A  manufacturer  renders  the  following  statement  for  credit 
purposes: 


Assets 

Liabilities 

Residence 

$  30  000 

Mortgage,  Residence 

$  12  000 

Plant 

140  000 

Mortgage,  Plant 

60  000 

Inventory 

90  400 

Notes  Payable 

25  000 

Accounts  Receivable 

3  500 

Accounts  Payable 

19  650 

Cash 

625 

Surplus 

147  875 

$264  525 

$264  525 

From  this  statement,  what  inferences  would  you  draw  as  to 
the  condition  of  his  business? 

{Massachusetts  C P.  A.) 


Problem  61 
PASSAIC  FALLS  WOOLEN  MANUFACTURING  CO. 

Balance  Sheet— June  30,  1918 


Assets: 

Land  $  10  000  00 

Buildings  (brick)  100  000  00 

Machinery  150  000  00 

Steam  Power  Plant  25  000  00 

Treasury  Stock  Common,  250  shares  costing  20  000  00 

Accounts  Receivable  60  000  00 

Inventories,  June  30,  1918  75  000  00 

Cash  20  000  00 

$450  000  00 

Liabilities. 

Capital  Stock— common,  par  $100.00  $125  000  00 

('apital  Stock— preferred  7%  cumulative,  par  $100.00  100  000  00 

Accounts  Payable  130  000  00 

Undistributed  Earnings,  June  30,  1917  60  000  00 

Profits,  year  ended  June  30,  1918  35  000  00 

$450  000  00 


CLASSIFIED  PROBLEMS  AND  EXERCISES  227 

Adjust  the  abov6  figures  in  regard  to  the  following: 

(1)  Land  is  appraised  at  $15,000  and  is  to  be  adjusted  to 
that  value. 

(2)  Give  effect  in  the  statements  to  depreciation  of  the  wasting 
fixed  assets  for  the  year  ended  June  30,  1918,  at  rates  considered 
fair. 

(3)  Dividends  on  the  Preferred  Stock  have  not  been  paid  for 
years  ended  June  30,  1917,  and  June  30,  1918. 

(4)  Inventories  are  valued  $5,000  below  cost. 

Required — From  the  above  balance  sheet  and  data: 

(a)   Prepare   corrected   balance   sheet  in  appropriate  form 
for  the  information   of  stockholders 

Cb)   Show  statement  of  adjustments  to  profits  and  surplus. 
{From  American  Institute  Examination) 


Problem  62 

The  following  is  a  comparative  balance  sheet  at  December 
31,  1910,  and  at  December  31,  1911,  presented  to  the  Board  of 

Directors  of  the  Western  Company  at  its  meeting  January  5, 

1912. 

Assets                                        12/31/1910  12/31/1911 

Land                                                                         $  20  000  00  $  25  000  00 

Buildings                                                                         45  000  00  45  000  00 

Machinery  and  Tools                                                    86  000  00  89  000  00 

Horses,  Wagons,  and  Harnesses                                  10  500  00  10  500  00 

Patents                                                                           6  000  00  6  000  00 

Good-Will                                                                     25  000  00  25  000  00 

Cash                                                                              28  300  00  10  300  00 

Accounts  Receivable                                                   29  600  00  26  550  00 

Investments  and  Bonds  15  000  00 

Inventory,  Goods  in  Process                                        10  800  00  14  690  00 

Inventory,  Materials  and  Supplies                               6  750  00  10  300  00 

Agency  Investments          •                                       3  680  00 

$267  950  00  $281  020  00 


228 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Liabilities 
Bonds  and  Mortgages  Payable 
Notes  Payable 
Accounts  Payable 
Reserves  for  Depreciation 
Discount  on  Bonds 
Capital  Stock: 

Preferred 

Common 
Surplus 


$  20  000  00 

$  35  000  00    2  000  00 

16  400  00    19  350  00 

2  500  00     6  750  00 

1  000  00 


150  000  00 
50  000  00 
14  050  00 


150  000  00 
50  000  00 
31  920  00 


$267  950  00  $281  020  00 


The  land  increase  was  due  to  appraisal  based  on  rise  of  values 
of  factory  sites  in  the  immediate  vicinity. 

Together  with  the  above  balance  sheet,  there  was  submitted 
to  the  Board  a  statement  of  income  and  profit  and  loss  showing 
the  profits  of  the  year  to  have  been  $22,120. 

The  directors  state  to  the  auditor  that  in  view  of  the  decrease 
of  cash  and  accounts  receivable,  of  the  absence  of  dividends, 
and  of  the  increase  of  capital  liabilities,  they  are  unable  to  ascer- 
tain what  has  become  of  the  profits  of  the  year. 

Required. — Prepare  a  statement  to  show  clearly  how  the  West- 
ern Company  has  applied  such  resources  of  the  year  1910  as  have 
been  lost  in  1911,  and  the  resources  and  profits  of  the  year  1911. 

{From  Massachvsetts  C.  P.  A.  Examination) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  229 

Group  H — Financial  Statements — Theory  Questions 

T-l 

In  a  general  way  what  is  the  difference  between  a    financial 
statement  and  a  balance  sheet? 

(Michigan  C.  P.  A.) 


T-2 

Distinguish  between  the  function  of  the  profit  and  loss  state- 
ment and  that  of  the  balance  sheet. 


T-3 

On  what  theory  does  the  English  form  of  balance  sheet  differ 
from  the  continental  and  American  form?  Give  an  argument 
either  for  or  against  the  English  form. 

(New  York  C.  P.  A.) 


T-4 

What  is  the  mechanism  of  the  double  account  form  of  balance 
sheet?     Explain   the   connection   between   its   sections. 

(New  York  C.  P.  A.) 


T-5 

(a)  What  determines  the  form  and  arrangement  of  the  balance 
sheet? 

(b)  What,  if  any,  are  the  existing  limitations  to  the  accuracy 
of  any  balance  sheet? 

(Ohio  C.  P.  A.) 


230  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-6 

In  which  section  of  the  balance  sheet  and  in  what  order  would 
you  show  the  following  items:  wages,  accounts  payable,  taxes, 
notes  payable,  interest  accrued  payable? 

{American  Institute) 


T-7 

Give  either  the  classification  of  notes  and  accounts  receivable 
suggested  in  the  Federal  Reserve  Bulletin  for  April  1917,  for  use 
in  audited  statements  for  credit  purposes,  or  an  alternative  classi- 
fication. 

{American  Institute) 


T-8 

There  is  a  confusion  in  the  minds  of  many  people  between 
statements  of  "revenue  and  expense"  on  the  one  hand  and  of 
"receipts  and  payments"  on  the  other  hand.  Discuss  the  dis- 
tinctive features  of  such  statements  showing  wherein  they  differ. 

{American  Institute.) 


T-9 

How  would  you  distinguish  between  plant  and  machinery 
expenditures  chargeable  to  capital  assets  accounts  and  those 
chargeable  to  ordinary  repair  and  maintenance  accounts? 


T-10 

How  would  you  classify  the  following  items  in  preparing  a 
certificate  of  condition,  to  be  filed  with  the  Secretary  of  the 
Commonwealth  ? 

(a)  Prepaid  Insurance. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  231 

(b)  Duty  paid 'on  foreign  merchandise  received,  invoice  for 
same  being  unpaid. 

(c)  Investments  in  stocks. 

(d)  An  ascertained  loss  on  a  contract  for  the  purchase  of 
merchandise  to  be  delivered  in  the  following  month. 

(^Massachusetts  C.  P.  A.) 


T-11 

In  preparing  a  balance  sheet  of  a  corporation  how  would  you 
classify  or  deal  with  securities : 

(a)  Representing  the  entire  ownership  of  a  plant? 

(b)  Representing  an  interest  in  a  competing  company? 

(c)  Representing  an  investment  of  a  sinking  fund? 

(d)  Representing  the  investment  of  a  temporary  surplus  of 
cash? 

(e)  Stocks  or  bonds  issued  by  the  company  itself? 

(American  Institute) 


T-12 

Explain  fully  in  what  way,  if  at  all,  the  following  should  enter 
into  trading  and  profit  and  loss  statements  of  a  grocery  business, 
with  reasons  for  inclusion  or  exclusion: 

(a)  Partners'  salaries. 

(b)  Profit  on  sale  of  real  estate. 

(c)  Partners'  drawings. 

(d)  Overvaluation  of  opening  inventory. 

(e)  Estimated  losses  in  realization  of  trading  assets. 

(Massachusetts  C.  P.  A.) 


T-13 

How  would  you  indicate  on  the  balance  sheet  as  of  December 
31st: 


232  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

(a)  Preferred  dividend  (cumulative)  due  the  previous  Novem- 
ber 1st,  not  declared. 

(b)  Ordinary  dividend  for  the  year,   declared  the  following 
January  22nd. 

(c)  Ordinary    dividend    declared    December    30th,    payable 


February  1st? 


{American  Institute — adapted) 


T-14 

A  corporation  has  a  controlling  account  in  the  general  ledger 

for  accounts  receivable.     The  balance  of  the  controlling  account 

is  $80,000.     The  debit  balances  of  the  individual  accounts  total 

$100,000  and  the  credit  balances  total  $20,000.     Is  a  statement 

correct  which  uses  the  controlling  account  balance  as  an  asset? 

If  not,  what  would  you  do?     Give  reasons. 

(Michigan  C.  P.  A.) 


T-15 

A  concern  needed  an  addition  to  its  plant.  Not  having  enough 
ready  capital  they  borrowed  money  and  when  the  interest  was 
paid  it  was  charged  to  the  Plant  account  on  the  theory  that 
it  was  not  an  expense  in  the  ordinary  conduct  of  the  business,  and, 
therefore,  could  not  be  charged  to  the  regular  interest  and  dis- 
count account  but  might  with  propriety  be  charged  as  a  part  of 

the  addition.     Is  the  theory  sound? 

(Michigan  C.  P.  A.) 


T-16 

A  manufacturing  concern  during  a  slack  period  used  its  own 
labor  and  material  for  the  purpose  of  construction,  and  charged 
the  Plant  account  with  the  value  of  the  work  done  at  the  price 
it  would  have  cost  if  outsiders  had  been  employed.  What  would 
you  say  about  this? 

(Michigan  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  233 

f  T-17 

(a)  What  is  meant  by  "Working  Capital?" 

(b)  What  facts  govern  as  to  the  amount  of  working  capital 
required? 

(c)  In  what  ways  may  working  capital  be  increased? 

(Ohio  C.  P.  A.) 


T-18 

Explain  how  the  following  items  would  appear  in  the  balance 
sheet : 

1.  Notes  receivable  discounted. 

2.  Actions  pending  against  your  client. 

3.  Cumulative  preferred  dividends  payable. 

4.  Liability  as  guarantor  for  third  parties. 

5.  Liability  as  accommodation  signer  on  note. 

6.  Contingent  liabilities  under  contracts. 

7.  Unpaid  balances  on  contracts  not  yet  fulfilled. 

8.  Collateral  in  possession  of  your  banker  to  secure  payment 
of  a  note. 

(Wisconsin  C.  P.  A.) 


T-19 

In  reporting  upon  an  audit  you  include  as  an  asset  "Advances 
to  Officers  $20,000."  The  advances  have  been  authorized  and 
there  is  every  probability  that  they  will  be  repaid.  The  presi- 
dent instructs  you  to  make  up  a  new  balance  sheet  and  include 
this  item  among  "Accounts  Receivable."    How  would  you  answer 

him? 

(Maryland  C.  P.  A.) 


T-20 

Enumerate  the  essential  heads  of  information  which  ought  to 
be  brought  out  in  statements  prepared  for  the  information  of 


234  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

bankers  for  credit  purposes.   Would  you  or  would  you  not  amplify 
such  information  in  a  statement  prepared  for  the  information  of 

(a)  Officers  and  directors? 

(b)  Shareholders  of  a  company? 

{American  Institute.) 


T-21 

What  do  you  understand  by  the  terms: 

(a)  Contingent  assets? 

(b)  Contingent  liabilities? 

Give  three  illustrations  of  each.  Should  they  .be  set  up  on  the 
books  of  the  company?  Should  they  appear  on  a  certified 
balance  sheet  of  the  company?     If  so,  where  and  how  stated? 

{American  Institute) 


T-22 

In  the  accounts  of  a  large  corporation  you  find  an  account  with 
Liberty  Bonds,  charged  with  $200,000,  representing  the  cost 
of  bonds  subscribed  and  paid  for  by  the  company.  At  the  date 
of  the  balance  sheet  to  which  you  are  to  certify,  the  bonds  had 
a  market  value  of  $187,500.  What  attitude  would  you  take 
as  to  their  valuation  in  the  balance  sheet? 

(American  Institute) 


T-23 

(a)  Should  cash  discounts  earned  be  credited  against  the  cost 
of  goods  purchased,  or  credited  to  profits?     Explain  why. 

(b)  What  is  meant  by  "turnover?" 

(c)  How  can  the  amount  of  the  "turnover"  be  shown  in  the 
Trading  Statement? 

{Michigan  C.  P.  A.) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  235 

T-24 

A  soap  company  has  adopted  the  policy  of  giving  away  pre- 
miums in  connection  with  its  sales,  by  means  of  coupons  which  are 
to  be  redeemed  in  quantities  provided  as  per  a  printed  list. 
How  should  these  premiums  be  treated  in  preparing  a  balance 
sheet  and  profit  and  loss  statement? 

(Michigan  C.  P.  A.) 


T-25 

The  Gordon  Manufacturing  Company  purchases  its  ma- 
chinery on  the  installment  plan,  payments  being  made  monthly, 
and  bill  of  sale  not  rendered  until  the  machinery  is  paid  in  full. 
December  31,  1921,  they  have  several  machines  in  service  not 
fully  paid  for.  How  should  the  value  of  the  machinery  and  the 
installments  paid  be  shown  on  the  balance  sheet? 


T-26 

The  X  Company  has  recently  purchased  the  patent  rights  to 
a  new  type  of  vending  machine,  which  they  are  manufacturing 
in  quantities.  In  order  to  get  them  on  the  market  quickly  they 
are  shipping  large  quantities  of  these  machines  to  general  agents 
on  approval,  the  agents  reporting  weekly  the  total  number  of 
machines  sold.  The  machines  were  charged  to  the  ledger  ac- 
counts of  the  general  agents  when  shipped  and  credited  to  the 
regular  sales  account.  How  should  these  items  be  handled  in 
preparing  the  balance  sheet  and  profit  and  loss  statement  at  the 
end  of  the  fiscal  period? 


T-27 

A  corporation  has  among  its  notes  receivable,  a  note  given  for 
stock  subscriptions;  also,  a  note  given  by  an  officer  of  the  com- 
pany to  cover  an  overdraft  on  his  salary  account.     The  notes 


236  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

payable  include  a  note  in  favor  of  another  officer  for  money 
advanced  to  the  business.     How  would  you  show  these  items 

in  the  balance  sheet? 

(Michigan  C,  P.  A.) 


T-28 

The  books  of  a  company  when  closed  for  the  fiscal  year  show 
a  substantial  net  profit.  No  dividends  were  paid  during  the 
year  and  there  is  no  cash  available  with  which  to  pay  dividends. 

What  would  account  for  this  condition? 

(Massachusetts  C.  P.  A.) 


T-29 

The  federal  reserve  board  stipulates  that  paper  to  be  eligible 
for  re-discount  must  be  supported  by  a  statement  of  the  borrower 
showing  a  satisfactory  excess  of  quick  assets  over  current  lia- 
bilities. 

(a)  For  such  purposes  what  items  are 

1.  Quick  assets? 

2.  Current  liabilities? 

(American  Institute) 


T-30 

A  company  that  has  constructed  a  dam  across  a  river  has  found 
it  necessary  to  retain  a  large  legal  force  to  handle  damage  suits 
coming  up  from  claims  that  the  reservoir  and  back  water  have 
damaged  property  around  them.  The  plant  has  been  in  operation 
for  4  years.  How  should  these  legal  fees  be  shown  in  the  finan- 
cial statements  at  the  close  of  each  fiscal  period? 


CLASSIFIED   PROBLEMS  AND   EXERCISES  237 

Group  I — Theory  Questions — Single  Entry  Accounts 

T-31 

In  a  single  entry  system  a  statement  of  operations  could  not 
be  constructed.  What  statements  would  you  prepare  in  order 
to  meet  the  requirements  of  determining  the  selling  value  of  its 
net  worth? 

{North  Carolina  C.  P.  A.) 


T-32 

(a)  Name  the  arguments  for  double  entry  bookkeeping  as 
opposed  to  single  entry  bookkeeping. 

(b)  What  facts  can  be  determined  from  books  kept  by  double 

entry  which  cannot  be  determined  from  books  kept  by  single 

entry? 

(Michigan  C.  P.  A.) 


T-33 

Describe  the  process  of  changing  a  set  of  books  from  single 

entry  to  double  entry. 

(Virginia  C.  P.  A.) 


T-34 

(a)  What  are  the  sources  of  data  for  the  financial  statements  of 
a  firm  keeping  their  books  under  the  single  entry  system? 

(b)  How  may  the  profit  or  loss  for  a  fiscal  period  be  determined 
from  a  single  entry  set  of  books? 


T-35 

Discuss  briefly  the  following  statement:  "Single  entry  is  an 
obsolete  system  and  has  no  place  in  modern  business." 

(California  C.  P.  A.) 


238  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Bibliography 

Financial  Statements 

Bell,  Wiluam  H.     Accountants'  Reports.     New  York,  1921. 

Bennett,  George  E.     Accounting  Principles  and  Practice.     New  York, 

1920.     Vol.  I,  Chaps,  xiii-xiv. 
Bennett,  Robert  J.     Corporation  Accounting.     New  York,  1917.     Chaps. 

xxiv-xxvi. 
Cole,  V/illiam  Morse.     Accounts:  Their  Construction  and  Interpreta- 
tion.    Boston,  1915.     Chaps,  v  and  ix. 

The  Fundamentals  of  Accounting.     Boston,  1921.     Chap.  xx. 
Cox,    Henry   C.     Advanced   and   Analytical   Accounting.     Business   Ac- 
counting, Vol.  IV.     New  York,  1920.     Chaps,  xxi-xxiv. 
Dickinson,  Arthur  L.     Accounting  Practice  and  Procedure.     New  York, 

1914. 
Esquerre,  Paul  J.     The  Applied  Theory  of  Accounts.     New  York,  1914. 

Part  v. 
Esquerre,  Paul  J.     Practical  Accounting  Problems.     Theory  Discussion 

and  Solutions.     Part  i.     New  York,  1921. 
Greeley,  Harold  Dudley.     Theory  of  Accounts.     Vol.  i.  Business  Ac- 
counting.    New  York,  1920.     Chaps,  xi  and  xiv. 
Greendlinger,   Leo.     Financial  and  Business  Statements.     New  York, 

1919.     Modern  Business,  Volume  22. 
Haskins  and  Sells.     Bulletin.     New  York,  1921.     Supplement  July  15, 

1921. 
Hatfield,  Henry  R.     Modem  Accounting.     New  York,  1913.     Chaps. 

IV,  V  and  vii. 
Kester,  Roy  B.     Accounting  Theory  and  Practice.     Vol.  ii.     New  York, 

1918.     Vol.  Ill,  Chap.  ii.     New  York,  1921. 
Klein,  Joseph  J.     Elements  of  Accounting,  New  York,  1915.     Chaps,  vii 

and  IX. 
McKiNSEY,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,   1921. 

Vol.  II,  Chaps.  XXXIV,  xlii,  xltii.     Vol.  iii,  Chaps,  l-lvii. 
Montgomery,  Robert  H.     Auditing  Theory  and  Practice.     New  York, 

1915. 
Paton,  William  H.,  and  Stevenson,  R.  A.     Principles  of  Accounting. 

New  York,  1918. 
Sprague,  Charles  E.     The  Philosophy  of  Accounts.     New  York,  1917. 

Chap.  v. 
Saliers,  Earl  A.     Accounts  in  Theory  and  Practice.     New  York,  1920. 

Part  v,  Pages  191-218. 

Financial   Statements   Made  Plain.     The   Magazine  of  Wall  Street. 

New  York,  1917. 
Wall,  Alexander.     The  Bankers'  Credit  Manual.     Indianapolis,   1919. 

Chaps,  iv-vi. 
Wilson,  R.  P.,  and  Carpenter,  H.  J.     Analysis  of  Financial  Statements. 

Chicago,  1918. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  239 

'    Manufacturing  Accounts 

Bennett,  George  E.     Accounting  Principles  and  Practice.     New  York, 

1921.     Vol.  II.     Chap.  xv. 
Greendlinger,    Leo.     Accounting    Practice.     New    York,    1914.     Chap. 

XXII. 

Hatfield,   Henry  R.     Modern  Accounting.     New  York,   1913.     Chaps. 

xv-xvi. 
McKiNSEY,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,   1921, 

Vol.  II,  Series  B,  Chap.  xliv. 
Rittenhouse,  Charles  F.,  and  Clapp,  Philip  F.     Accounting    Theory 

and  Practice.     Unit  ii.     New  York,  1919.     Chap.  xii. 
Saliers,  Earl  A.     Accounts  in  Theory  and  Practice.     New  York,  1920. 

Part  VI.     Pages  251-269. 

Single  Entry 

Bennett,  George  E.     Accounting  Principles  and  Practice.     New  York, 

1920.     Vol.  I,  Chap.  ii. 
Esquerre,  Paul  J.     The  Applied  Theory  of  Accounts.     New  York,  1920. 

Chap.  V. 
Greeley,    H.    D.     Theory    of   Accounts.     Vol.    i,    Business    Accounting. 

New  York,  1920.     Chaps,  xxxiv-xxxv. 
Kester,   Roy  B.     Accounting  Theory  and  Practice.     New  York,    1917. 

Vol.  I,  Chaps.  Lv  and  lvi. 
Klein,  Joseph  J.     Elements  of  Accounting.     New  York,  1915.     Chap.  iv. 
Lisle,  George.     Accounting  in  Theory  and  Practice.     London,  1909. 
MacFarland,  G.  a.,  and  Rossheim,  L  D.     A  First  Year  in  Bookkeeping 

and  Accounting.     New  York,  1915.     Chap.  iv. 
McKiNSEY,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,  1921. 

Vol.  II,  Series  B,  Chap,  xxxvi. 


SECTION  n 
CORPORATION  ACCOUNTS 
Group  A — Opening  the  Books  of  a  New  Corporation 

Problem  63 

S.  V.  Bendel,  W.  J.  Clark,  and  R.  M.  Dean  organize  the  Bendel 
Manufacturing  Company  with  an  authorized  capital  stock  of 
$50,000,  divided  into  shares  of  $100  each.  The  charter  is  dated 
April  1,  1922,  at  which  time  all  the  stock  is  subscribed,  full 
payment  made  in  cash,  and  the  stock  certificates  issued. 

Required: 

(a)  Opening  entries  in  the  financial  books  of  the  corporation 

(b)  Entries  required  in  the  corporate  books 

(c)  Entry  to  record  payment  of  incorporation  fee. 

Comments. — This  problem  illustrates  the  use  of  the  simplest  form  of 
entry  for  opening  the  books  of  a  corporation.  When  the  entire  authorized 
stock  issue  is  subscribed  and  paid  for  in  full  at  the  time  the  corporation  is 
organized,  the  only  entry  necessary  in  the  financial  books  is  to  debit  cash 
and  credit  capital  stock. 


Problem  64 

The  S.  W.  Heath  Company  was  organized  June  1,  1922,  with 
an  authorized  capital  stock  of  $25,000,  par  value  of  shares  $50 
each,  at  which  time  all  of  the  stock  had  been  subscribed  for, 
payable  in  30  days.  July  1,  1922,  the  subscribers  made  full 
payments  for  their  stock  in  cash,  and  the  certificates  were  issued 
in  proper  form. 

241 


242  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  Entries   in  the  financial  books   of  the    corporation    to 
record  the  above  facts 

(b)  Entries  in  the  corporate  records  on  June  1  and  July  1. 

Comments. — When  the  authorized  stock  issue  is  all  subscribed  as  of  the 
date  of  incorporation,  and  is  to  be  paid  for  in  full  at  a  later  date,  an  entry 
should  be  made  following  the  closing  of  the  subscription  list  debiting  Sub- 
scriptions Receivable  and  crediting  Capital  Stock  Subscribed.  Later,  when 
the  stock  is  paid  for  and  the  certificate  issued,  an  entry  is  made  debiting 
Cash  and  crediting  Subscriptions  Receivable,  and  another  entry  made 
debiting  Capital  Stock  Subscribed  and  crediting  Capital  Stock  to  record  the 
issue  of  the  stock. 


Problem  65 

The  Mansfield  Company  was  incorporated  January  1,  1923, 
with  an  authorized  capital  stock  of  $100,000,  consisting  of 
$50,000  6%  Preferred  Stock  and  $50,000  Common  Stock,  divided 
into  shares  of  $100  each.  Seventy-five  per  cent  of  the  Preferred 
Stock  and  50  per  cent  of  the  Common  Stock  had  been  sub- 
scribed for.  The  subscriptions  were  paid  February  1,  and  the 
stock  certificates  issued. 

Required. — Show  in  general  journal  form  entries  covering  the 
above,  bringing  onto  the  books  the  authorized  stock  issue. 

Comments. — Separate  accounts  must  be  opened  with  each  class  of  stock. 

When  the  authorized  stock  issue  is  not  all  subscribed  as  of  the  date  of 
incorporation  or  when  the  subscriptions  are  to  be  paid  for  in  installments 
extending  over  a  considerable  period,  certificates  not  to  be  issued  until 
stock  is  fully  paid,  it  is  sometimes  advisable  to  make  an  entry  at  time  of 
incorporation  debiting  Unissued  Stock  and  crediting  Capital  Stock  Author- 
ized (separate  accounts  for  each  class  of  stock).  This  problem  calls  for 
such  an  entry.  The  subscriptions  to  the  stock  should  be  recorded  as  usual. 
When  tlic  tstock  is  issued,  debit  Capital  Stock  Subscribed  and  credit  Unissued 
Stock. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  243 

'  Problem  66 

The  Duplex  Manufacturing  Company  was  organized  under  the 
Business  Corporation  Law  of  Massachusetts,  September  1,  1922, 
with  an  authorized  issue  of  five  thousand  shares  of  no  par  value 
stock.  Three  thousand  shares  of  the  stock  were  issued  to  A  in 
payment  for  his  plant  valued  at  $250,000;  one  thousand  shares 
were  issued  for  cash  at  $60  per  share;  and  five  hundred  shares 
were  subscribed  at  $75  per  share,  payable  in  30  days.  The  sub- 
scribed stock  was  paid  for  October  1,  and  the  shares  issued. 

Required: 

(a)  Make  in   general  journal  form    entries    covering    the 
above,  including  payment  of  incorporation  fee 

(b)  Indicate  how  the  outstanding  stock  should  be  shown  in 
the  balance  sheet  on  October  31,  1922. 

Comments. — No  par  value  stock  should  be  brought  onto  the  books  at 
value  actually  received  for  same  or  value  at  which  subscribed.  The  num- 
ber of  shares  should  be  indicated  in  each  case.  The  first  entry  in  this  prob- 
lem would  be  as  follows: 

Plant  $250  000 

Capital  Stock  (3,000  shares)  $250  000 

The  remaining  entries  would  be  in  the  usual  form  for  par  value  stock  except 
that  the  values  should  be  those  actually  received. 


Problem  67 

The  Rich  Manufacturing  Company  was  incorporated  May  1, 
1921,  to  take  over  the  business  established  by  William  Rich.  It 
was  agreed  between  Rich  and  the  other  incorporators  that  of 
the  $100,000  in  capital  stock  which  he  received  in  exchange 
for  his  business,  he  would  donate  to  the  corporation  20%  to 
be  sold  to  provide  cash  to  make  necessary  expansion.  On  July 
10,  $10,000  of  the  stock  so  donated  was  sold  to  investors  at  60. 


244  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

Make  entries  to  record  the  above. 

Comments. — Debit  Plant  Equipment  for  business  acquired  by  the  cor- 
poration from  Rich. 

Charge  Treasury  Stock  and  credit  Capital  Stock  Donated  for  par  value 
of  stock  donated  by  Rich  under  date  of  May  1.  Credit  Capital  Surplus 
for  proceeds  of  sale  of  treasury  stock.  When  the  stock  is  issued  reverse 
that  portion  of  the  entry  made  when  stock  was  received  applicable  to 
shares  disposed  of  (Capital  Stock  Donated  to  Treasury  Stock) . 


Problem  68 

A  mining  company  is  organized  with  a  capital  stock  of  S500,000, 
in  shares  of  $5  each.  The  entire  capital  stock  is  issued  in  pay- 
ment for  the  properties  acquired  by  the  company.  The  stock- 
holders then  return  to  the  company  as  a  gift,  25,000  shares, 
which  are  to  be  sold  by  the  company  for  the  purpose  of  providing 
working  capital.  The  company  afterwards  sells  10,000  of  these 
shares  at  S2.50  each,  and  the  remainder  at  $2.75  each. 

Required: 

Prepare  journal  entries  covering  above  transactions,  illustrat- 
ing two  methods  of  handling  the  donated  stock. 

Comments. — It  may  be  assumed  that  the  cash  is  received  and  shares 
issued. 

The  first  method  would  be  as  illustrated  in  the  previous  problem. 

The  second  method  assumes  the  book  value  of  properties  to  be  inflated 
to  the  extent  of  the  donation.  The  Properties  account  should,  therefore, 
be  credited  instead  of  Capital  Surplus. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  245 

Problem  69 

Company  A  received  its  certificate  of  incorporation  from  the 
Commonwealth  of  Massachusetts  on  January  10,  1922.  The 
company  was  authorized  to  issue  10,000  shares  of  Preferred 
Stock  and  10,000  shares  of  Common  Stock  of  the  par  value  of 
$100  each.  The  subscribers  of  record  agreed  to  take  1,000 
shares  of  Preferred  and  2,000  shares  of  Common  Stock,  and 
paid  the  treasurer  10%  of  the  amount  subscribed. 

January  15,  1922,  the  company  sold  1,000  shares  of  Preferred 
to  a  firm  of  brokers  at  101,  and  received  the  balance  owing  by 
the  subscribers  of  record  in  cash.  The  stock  being  fully  paid, 
certificates  were  issued  to  all  subscribers  of  record. 

January  25,  1922,  several  stockholders  donated  $500  shares  of 
Common  Stock  for  use  in  financing  the  company. 

January  30,  1922,  sold  100  shares  of  the  donated  stock  held 
by  the  treasurer  at  79;  also  sold  100  shares  of  Preferred  at  102; 
and  gave  as  a  bonus  three  shares  of  Treasury  Stock  with  each 
block  of  ten  shares  of  Preferred. 

January  31,  1922,  the  directors  declared  dividends  as  follows: 
On  the  preferred,  /^% ;  on  the  common,  3^%,  payable  February 
15  to  the  stockholders  of  record  as  of  January  31. 

Required: 

(a)  Journal  entries  for  above  transactions  (without  explana- 
tions) 

(b)  Prepare  trial  balance  as  of  January  31,  1922. 

Comments. — The  stock  not  being  all  subscribed  the  Unissued  and  Author- 
ized Stock  accounts  may  be  used. 

For  the  purpose  of  this  problem,  the  dividends  may  be  charged  to  Surplus. 


Problem  70 

A  company  is  formed  with  a  nominal  capital  of  $500,000  in 
50,000  shares  of  $10  each.  Of  these,  40,000  are  subscribed 
for.  $1  per  share  is  payable  on  application,  and  $2  per  share 
on  allotment.     A  call  of  $3  per  share  is  made  four  months  after  the 


246  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

date  of  allotmont,  and  a  further  call  of  $3  three  months  after 
the  date  of  the  first  call. 

The  deposit,  with  the  amount  per  share  due  on  allotment, 
is  paid  in  full,  but  in  respect  to  the  first  call  $110,000  only  is 
received,  and  on  the  second  call  $95,000  only.  The  amounts 
received  are  paid  into  the  company's  banking  account. 

Required: 

(a)  Prepare  journal  entries  to  record  the  above  transactions 

(b)  Submit  a  list  of  ledger  balances. 

(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — The  $1  per  share  paid  or  application  and  the  $2  per 
share  paid  on  allotment  are  credited  to  Subscriptions  Receivable  account. 
The  two  calls  made  at  later  dates  for  $3  per  share  make  it  advisable  to 
set  up  accounts  with  Installment  1  and  Installment  2.  There  remains  $1 
per  share  to  be  paid  on  this  stock,  and  therefore  the  shares  are  not  issued 
until  this  is  paid. 


Problem  71 

A  corporation  having  issued  its  capital  stock  at  par  buys 
1,000  shares  at  95.  It  later  sells  500  of  these  shares  at  98,  300 
at  85,  and  200  at  101. 

Required : 

(a)  Give  the  journal  entries  covering  these  transactions 

(b)  How  should  the  items  appear  on  the  balance  sheet 
immediately  after  purchasing  the  stock,  and  imme- 
diately after  each  of  the  sales? 

(From  American  Institute  Examination) 

Comments. — The  first  sentence  is  understood  to  mean  that  the  corpora- 
tion buys  1,000  shares  of  its  own  stock,  which  thus  becomes  treasury  stock. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  247 

f  Problem  72 

The  Marion  Plating  Company  was  organized  on  April  1,  1922, 
with  an  authorized  capital  stock  of  $200,000  divided  into  4,000 
shares  at  the  par  value  of  $50  each. 

At  a  meeting  of  the  directors  there  was  purchased  from  H.  A. 
Bush,  at  a  valuation  of  $150,000,  all  his  right,  title,  and  interest 
in  various  patents  held  by  him. 

The  balance  of  the  stock  was  subscribed  for  on  April  1  by 
E.  S.  Altieri  and  F.  W.  Balcomb  in  equal  amounts. 

In  order  to  raise  funds  with  which  to  exploit  the  invention, 
Mr.  Bush  donated  to  the  company  2,500  shares  of  stock.  Of  this, 
2,000  shares  were  sold  before  April  15  at  an  average  of  40,  and 
200  shares  were  used  in  giving  a  bonus  of  10%  in  stock. 

The  first  installment  of  $10  per  share  was  received  April  15 
from  both  Mr.  Altieri  and  Mr.  Balcomb. 

The  organization  expenses  were  $500;  this  was  paid  April  15. 

Required: 

(a)  Journal  entries  to  express  the  above  facts 

(b)  A  trial  balance  as  of  April  15. 


Problem  73 

The  Excelsior  Company  is  organized  under  the  laws  of  the 
State  of  New  York  with  an  authorized  capital  of  $1,000,000, 
divided  into  $500,000  Common  and  $500,000  Preferred  Stock, 
the  par  value  of  the .  Preferred  being  $100  and  the  par  value  of 
the  Common  being  $50.  Three  incorporators,  John  Doe, 
Richard  Roe,  and  Samuel  Straight,  each  subscribes  for  one  share 
of  Preferred  Stock  at  the  par  value.  John  Doe,  one  of  the  in- 
corporators, transfers  his  complete  manufacturing  plant  to  the 
Excelsior  Company  for  the  remaining  Preferred  Stock  and 
$300,000  in  Common  Stock.  The  individual  assets  acquired  are : 
Land  and  Building,  $100,000;  Plant  and  Machinery,  $150,000; 
Furniture  and  Fixtures,  $75,000;  Inventories,  $84,000;  Accounts 


248  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Receivable,  $63,000;  Cash,  $77,700.  The  incorporators  pay 
in  cash  for  their  subscriptions.  The  organization  expenses  were 
$2,500  paid  in  cash: 

Required: 

(a)  The   opening   entries  for  the    books  of  the  Excelsior 
Company 

(b)  The  initial  balance  sheet. 

Comments. — Set  up  an  account  with  good-will  for  the  excess  of  the  stock 
issued  over  the  value  of  the  assets  acquired. 


Problem  74 

A  corporation  is  organized  under  the  laws  of  the  State  of 
Michigan,  with  Capital  Stock  $250,000,  of  which  $100,000  is 
Preferred  and  $150,000  is  Common  Stock,  shares  $100  each. 
The  purchasers  of  Preferred  Stock  at  par  are  to  receive  an  equal 
amount  of  Common  Stock  free.  All  the  Preferred  Stock  is  sub- 
scribed and  paid  for,  leaving  $50,000  of  Common  Stock  unsub- 
scribed. It  is  found  that  the  remaining  Common  Stock  cannot 
be  sold  for  sufficient  cash  for  requirements,  and  the  holders  of 
Preferred  Stock  donate  to  the  Treasury  $50,000  of  their  Common 
Stock.     The  Common  Stock  is  sold  at  50  cents  on  the  dollar. 

Required: 

Provide  journal  entries  covering  the  above   (explain  each 
entry  fully). 

(From  Michigan  C.  P.  A.  Examination) 

Comments. — The  Common  Stock  issued  to  preferred  stockholders  free  of 
charge  may  be  charged  to  a  Bonus  account. 

The  last  sentence  is  construed  to  mean  a  sale  of  both  the  balance  of  the 
unissued  Common  Stock  and  the  Treasury  Stock  on  hand  at  50%  of  par 
value. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  249 

Problem  75 

A  Massachusetts  corporation  was  organized  with  a  capital 
of  $100,000—10,000  shares  of  $10  each.  At  the  meeting  of  the 
incorporators  it  was  resolved  to  purchase  certain  patent  rights 
from  and  for  the  whole  of  the  capital,  less  100  shares  held  by 
the  incorporators  and  paid  for  at  par.  Afterward  the  former 
owner  of  the  patent  rights  agreed  to  sell  to  the  company  5.900 
shares  for  the  sum  of  $29,500,  or  $5  per  share,  which  was  ac- 
cepted, and  B  was  appointed  trustee  to  hold  the  stock  in  his 
name  as  trustee,  and  was  authorized  by  the  directors  to  sell 
the  stock  at  $8  per  share,  which  he  succeeded  in  doing. 

Required: 

(a)  Give  proper  entries  for  the  above  transactions 

(b)  How   would  the  profits  on  this  transaction  affect  the 
dividends  of  the  stockholders? 

(From  Massachusetts  C.  P.  A.  Examination) 
Comments. — No  entry  need  be  made  for  appointment  of  B  as  trustee. 
When  the  sale  is  made,  carry  the  profit  to  Capital  Surplus  account. 


Problem  76 

A  corporation  is  organized  with  a  capital  stock  of  $100,000 
to  acquire  a  business  formerly  conducted  by  A.  The  business 
shows  sundry  assets,  $150,000,  and  sundry  liabilities,  $80,000. 
Three  shares  of  stock  are  sold  at  par  to  X,  Y,  and  Z,  who  after- 
ward become  directors  of  the  new  corporation.  All  of  the  re- 
maining stock  is  issued  to  A,  who  immediately  donates  $10,000 
of  stock  to  the  treasury  to  procure  additional  capital.  Two 
months  later  $5,000  of  the  donated  stock  is  sold  at  48,  and  6 
months  later  the  remainder  was  sold  at  62. 

Required : 

(a)  Show  in  general  journal  form  entries  covering  the  above 

(b)  Submit  a  trial  balance  of  ledger  accounts. 


250  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  B — Changing  a  Partnership  to  a  Corporation 

Problem  77 

Messrs.  Elwell  and  Rogers,  partners,  engaged  in  manufacturing, 
decide  to  form  a  business  corporation  under  the  laws  of  Massa- 
chusetts, under  the  name  of  the  Rogers  Manufacturing  Com- 
pany, with  an  authorized  capital  of  $100,000.  In  consideration 
of  the  entire  issue  of  capital  stock,  the  corporation  purchased 
all  of  the  assets  except  cash,  and  assumed  all  of  the  liabilities 
of  the  partnership,  except  the  loan  owed  Rogers  as  shown  by 
the  following  balance  sheet  dated  November  30,  1920. 

Balance  Sheet— November  30,  1920 

Assets 
Plant  and  Machinery 
Stock  on  Hand  per  inventory 
Accounts  Receivable 
Notes  Receivable 
Cash 

Total  Assets 

Liabilities 
Elwell's  Capital 
Rogers'  Capital 
Accounts  Payable 
Rogers'  Loan 
Wages  Due  and  Unpaid 

Total  Liabilities  and  Capital 

Required: 

Sketch  in  general  journal  form  entries  necessary: 

(a)  To  close  out  the  books  of  the  above  partnership 

(b)  To  open  the  books  of  the  Rogers  Manufacturing  Com- 
pany. 

Comments. — In  closing  out  the  partnership  books,  where  the  form  of 
proprietorship  is  changed  to  that  of  a  corporation,  a  very  definite  pro- 
cedure should  be  followed.  The  entries  should  be  set  up  as  if  it  were  a 
sale  to  outsiders,  an  accoimt  being  opened  with  the  corporation  as  vendee. 

In  this  problem  the  entries  would  be  as  follows: 

(1)  Bring  onto  the  books  the  good-will  incidental  to  the  sale  of  the 
business  by  charging  Good-Will  and  crediting  the  partners'  accounts  in  the 
proportion  in  which  profits  are  shared. 

(2)  Charge  the  assets  (including  good-will) '  sold  to  the  vendee  company 
by  debiting  the  vendee  company  and  crediting  the  various  asset  accounts. 


$35  000 

20 

525 

22 

7.50 

1 

500 

5 

225 

S85 

000 

$42 

500 

36 

300 

5 

250 

700 

250 

$85  000 

CLASSIFIED   riiOBLEMS  AND   EXERCISES  251 

(3)  Credit  the  vcndOc  company  for  the  liabilities  assumed  by  debiting 
the  various  liability  accounts  and  crediting  the  vendee  company. 

(4)  (hedit  the  vendee  company  for  the  shares  of  capital  stock  l-eceived 
from  them  in  payment  for  the  net  assets  by  debiting  Capital  Stock  of  Rogers 
Manufacturing  Company  and  crediting  Rogers  Manufacturing  Company, 
Vendee. 

(5)  Pay  off  the  Rogers  Loan  not  assumed  by  the  vendee  company, 
crediting  cash. 

(6)  Distribute  the  stock  received  from  the  vendee  company  and  the 
cash  remaining  in  the  business  by  charging  the  partners'  accounts  and 
crediting  Capital  Stock  of  Rogers  Manufacturing  Company  and  Cash.  In 
the  absence  of  any  special  agreement,  the  distribution  will  be  in  the  ratio 
that  each  partner's  net  capital  bears  to  the  total  net  capital  at  time  of 
distribution. 

In  making  entries  to  open  the  corporation  books: 

(1)  Make  the  usual  entry  to  set  up  the  capital  stock  authorized. 

(2)  Bring  onto  the  books  the  assets  (including  good-will)  acquired  from 
the  vendor  firm  by  debiting  the  various  asset  accounts  and  crediting  the 
vendor  firm. 

(3)  Bring  on  the  various  liabilities  assumed  by  the  vendee  corporation 
by  debiting  the  vendor  firm  and  crediting  the  proper  liability  accounts. 

(4)  Charge  the  vendor  firm  for  the  capital  stock  issued  to  it  in  settle- 
ment for  the  net  assets  taken  over  by  debiting  the  vendor  firm  and  credit- 
ing Unissued  Stock. 


Problem  78 

G.  W.  Pitts  &  Company,  who  have  been  conducting  a  whole- 
sale grocery  business,  have  decided  to  incorporate.  Their 
assets  and  liabilities  are  stated  as  follows : 

Balance  Sheet— April  30,  1922 


Assets 


Real  Estate  and  Improvements 

Inventory 

Accounts  Receivable 

Cash 

Total  Assets 


$64  500 

15  500 

5  400 

2  600 

$88  000 

$  7  800 

25  000 

$32  800 

$30  000 

20  000 

5  200 

55  200 

$88  000 

252  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Liabilities 

Accounts  Payable 
Notes  Payable 
G.  W.  Pitts,  Capital 
R.  M.  Price,  Capital 
J.  G.  Riley,  Capital 

Total  Liabilities  and  Capital 

Profits  are  shared  as  follows:  Pitts,  one-half;  Price,  one-fourth; 
and  Riley,  one-fourth. 

The  corporation  known  as  The  Pitts-Price-Riley  Company 
is  incorporated  May  1,  1922,  with  an  authorized  capital  stock 
of  $150,000,  par  value  $100  per  share.  The  following  subscrip- 
tions were  received  for  stock  at  par:  R.  M.  Price,  100  shares; 
J.  G.  Riley,  250  shares;  Dion  &  Company,  brokers,  500  shares. 
The  subscriptions  are  fully  paid  in  cash,  and  the  certificates 
issued. 

The  corporation  takes  all  the  assets  of  the  partnership  except 
cash  and  assumes  payment  of  the  accounts  payable,  but  not  notes 
payable. 

The  real  estate  and  improvements  are  taken  over  at  a  valuation 
of  $100,000,  and  the  Good-will  is  considered  worth  $20,000. 
The  purchase  price  is  to  be  paid  as  follows:  Cash,  $33,100; 
Bonds,  $50,000;  Stock,  $50,000. 

Required: 

(a)  The  entries  necessary  to  close  the  books  of  the  partner- 
ship and  open  the  books  of  the  corporation 

(b)  Balance  sheet  of  corporation.  May  31,  1922. 

Comments. — The  procedure  in  this  problem  will  be  similar  to  that  out- 
lined for  the  previous  problem.  It  will  be  necessary  to  adjust  the  Real 
Estate  account,  crediting  the  increase  in  value  to  the  partners  in  proper 
proportion.  The  good-will  of  $20,000  will  be  brought  onto  the  books  and 
credited  to  the  partners  in  profit  and  loss  ratio.  Credit  the  vendee  cor- 
poration for  the  cash,  bonds,  and  stock  received  in  payment  for  the  net 
assets.  The  payment  of  the  notes  payable  and  the  distribution  of  assets 
will  be  as  outlined  for  the  previous  problem. 


CLASSIFIED  PROBLEMS  AXD   EXERCISES  253 

'  Problem  79 

Foster,  French  &  Company,  a  partnership  conducting  a  manu- 
facturing business,  decide  to  incorporate. 

A  balance  sheet  taken  on  December  31,  1922,  shows  the  fol- 
lowing assets  and  liabilities: 


Balance  Sheet — December  31,  1922 


Cash 

Accounts  Receivable 


$     5  000 

Accounts  Payable 

$  40  000 

;            30  000 

Foster,  Capital 

50  000 

sets     155  000 

French,  Capital 

50  000 

Oilman,  Capital 

25  000 

Gould,  Capital 

25  000 

$190  000 

$190  000 

Profits  and  losses  are  shared  in  proportion  to  capital  invest- 
ments. 

.  On  January  1,  1923,  they  incorporate  the  Salem  Manufac- 
turing Company  with  a  capital  stock  of  $200,000,  consisting  of 
1,000  shares  each  of  Common  and  Preferred  Stock,  with  a  par 
value  of  $100. 

All  the  assets  of  the  firm,  except  cash,  are  taken  over  by  the 
new  corporation,  and  all  of  the  liabilities  are  assumed.  In 
exchange  for  the  property  of  the  old  firm,  900  shares  each  of 
Preferred  and  Common  Stock  are  issued  to  the  partners  in  the 
proportion  shown  by  their  capital  accounts,  which  stock,  includ- 
ing the  cash  on  hand,  is  distributed  equitably  among  the  partners. 
The  remaining  stock  is  subscribed  for  at  par  by  outside  parties, 
their  subscriptions  being  paid  in  full  on  January  15, 

On  February  1,  the  four  incorporators  donate  to  the  corpora- 
tion $20,000  of  Common  Stock  in  proportion  to  their  holdings 
to  be  sold  to  produce  further  working  capital. 

April  1,  100  shares  of  the  donated  stock  is  reported  sold  at  an 
average  price  of  75. 

Required: 

(a)  Entries  to  close  partnership  books 

(b)  Entries  to  open  corporation  books  and  to  record  suc- 
ceeding transactions 

(c)  Balance  sheet  of   the  Salem  Manufacturing  Company 
as  of  April  1,  1923. 


254  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — Attention  is  called  to  the  fact  that  the  stock  received  from 
the  vendee  and  the  cash  remaining  on  hand  are  distributed  in  proportion 
to  partners'  net  capital  at  time  of  distribution  and  after  bringing  on  the 
good-will,  if  any. 


Problem  80 

Crosby  &  Company,  desiring  to  incorporate  their  business, 
secure  a  charter  under  the  laws  of  the  Commonwealth  of  Massa- 
chusetts on  December  30,  1921,  the  Crosby  Chemical  Company 
being  organized  for  the  purpose  of  manufacturing  chemicals,  and 
for  the  sale  of  the  products  of  such  manufacture.  The  capital 
stock  of  the  company  consists  of  3,000  shares,  par  value  of  $100 
each.  Two  shares  each  are  issued  to  A  and  B  for  services  ren- 
dered the  corporation.  The  balance  of  the  stock  is  issued  to  the 
partners  in  payment  for  formulae,  trade  marks,  and  patents,  and 
for  the  net  assets  of  Crosby  &  Company's  business,  a  balance 
sheet  of  which  is  as  follows: 

Balance  Sheet — January  1,  1922 


Assets 

Real  Estate 

$25 

000 

Machinery 

30 

000 

Fixtures 

15 

600 

Manufactured  Goods 

15 

220 

Materials  and  Supplies 

29 

222 

Prepaid  Insurance 

1 

856 

Cash 

12 

106 

Accounts  Receivable 

28 

418 

Total  Assets 

$157  422 

Liabilities 

Notes  Payal)le 

$  2 

000 

Accounts  Payable 

3 

143 

J.  A.  Crosby 

77 

025 

Thomas  Ross 

75 

254 

Total  Liabilities 

$157  422 

Required: 

(a)  Entries  to  close  the  books  of  Crosby  &  Company 

(b)  Entries  to  open  the  books  of  the  corporation. 


CLASSIFIED   PROBLEMS  AXD   EXERCISES  255 

Comments. — The  difference  between  the  par  vakie  of  stock  issued  to  part- 
ners and  the  book  value  of  the  business  is  charged  to  Formulae,  Trade 
Marks,  and  Patents  account. 

Inasmuch  as  practically  all  the  stock  of  the  corporation  is  held  bj'  the 
old  partners,  the  cash  is  transferred  with  the  other  assets. 

Clearness  and  completeness  in  stating  all  necessary  particulars  should 
receive  vour  consideration. 


Problem  81 

Charles  Capon  and  Albert  Carver  have  been  partners  in  the 
wholesale  drug  business  for  a  number  of  years.  They  decide 
to  incorporate,  and  a  corporation  to  be  known  as  the  People's 
Drug  Company  is  organized  under  the  laws  of  Maine,  with  a 
Capital  Stock  of  $100,000,  of  which  $60,000  is  6%  Preferred  Stock 
and  the  remainder  Common  Stock. 

The  balance  sheet  of  the  partnership  on  July  1,  the  date  of 
of  incorporation,  is  as  follows: 


Assets 

Liabilities 

Cash 

$  2  000 

Notes  Payable 

$  2  000 

Real  Estate 

40  000 

Accounts  Payable 

8  000 

Accounts  Receivable 

20  000 

Charles  Capon,  Capital 

30  000 

Notes  Receivable 

5  000 

Albert  Carver,  Capital 

30  000 

Furniture  and  Equipment 

3  000 

$70  000 

$70  000 

All  of  the  Preferred  Stock  is  issued  in  equal  parts  to  Capon  and 
Carver  in  exchange  for  the  net  assets  of  the  old  business.  The 
Common  Stock  is  all  subscribed  for  at  par  by  outsiders,  and  their 
subscriptions  are  paid  August  15. 

The  company  closed  its  books  December  31,  at  which  time 
the  profit  and  loss  statement  showed  a  net  profit  of  $5,496.83. 
The  regular  quarterly  dividend  was  declared  on  the  Preferred 
Stock  and  a  dividend  of  2%  on  the  Common  Stock,  payable 
January  15. 


256  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  Entries  necessary  to  close  the  partnership  books 

(b)  Entries  on  corporation  books  to  record  issue  of  both 
classes  of  stock,  assets  ac(iuired  and  lia])ilities  assumed 

(c)  Entries  to  close  profit  and  loss  account  and  for  the  dec- 
laration of  the  dividends  and  their  payment. 


Problem  82 

A  and  B  were  partners,  trading  under  the  name  of  A,  B  & 
Company.  June  30,  1922,  the  following  balances  appear  on  their 
ledger: 

A,  Capital  $70  000 

B,  Capital  50  000 
Real  Estate  22  000 
Buildings  20  000 
Machinery  and  Tools  .  44  000 
Furniture  and  Fixtures  2  000 
Accounts  Receivable  50  000 
Cash  7  OCO 
Materials  and  Merchandise  53  000 
Accounts  Payable  35  000 
Bills  Payable  48  000 
Bills  Receivable  5  000 

On  June  30,  1922,  the  business  is  incorporated  as  the  X  Com- 
pany, on  the  following  plan: 

(1)  Capital  stock,  $150,000. 

(2)  X  C'ompany  takes  over  the  entire  assets  and  liabilities  of 
A,  B  &  Company  at  the  book  figures  as  above,  except  (a)  real 
estate  of  the  book  value  of  $5,000,  which  is  retained  by  A,  B  & 
Company;  (b)  the  accounts  receivable,  which  are  taken  over 
at  $48,000,  and  (c)  the  capital  accounts  of  the  partners. 

(3)  X  Company  pays  A,  B  &  Company  $30,000  for  the  good- 
will of  the  l)usiness. 

(4)  Payments  to  A,  B  &  Company  are  made  as  follows,  viz.: 
$50,000  in  first  mortgage  bonds,  and  the  balance  in  capital  stock 
of  X  Company. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  257 

(5)  After  paying  off  A,  B  &  Company,  the  remainder  of  the 
capital  stock  is  sold  for  cash  to  sundry  persons. 

The  real  estate  which  is  retained  by  A,  B  &  Company  is 
bought  from  A,  B  &  Company  by  A,  for  $7,000,  and  is  charged 
to  A's  capital  account. 

After  the  conclusion  of  the  foregoing  described  transactions, 
A  and  B  dissolve  partnership. 

Required: 

(a)  Prepare  closing  entries  for  books  of  A,  B  &  Company 

(b)  Statement  setting  forth  the  partners'  accounts  down 
to  their  final  closing,  beginning  with  the  balances  shown 
by  the  books  on  June  30,  1922 

(c)  Opening  entries  for  the  X  Company. 

{From  Washington  C.  P.  A.  Examination) 

Comments. — The  statement  called  for  in  (b)  may  be  shown  in  the  form 
of  ledger  accounts  with  each  item  fully  explained. 


Problem  83 

Thomas  Jones  and  William  Thompson  are  trading  in  partner- 
ship as  wholesale  grocery  merchants,  sharing  profits  equally.  On 
January  1  their  balance  sheet  is  as  follows: 

Assets 
Stock  in  Trade 
Furniture 
Debtors 
Cash 
Good-Will 

Liabilities 
Bank  of  British  North  America 
Creditors 
Jones 
Thompson 


$27  245 

2 

752 

37 

625 

752 

5 

000 

$73  374 

$10  000 

27 

528 

25 

243 

10  603 

$73 

374 

$35  424 

3  840 

42  741 

3  415 

$85  420 

$35  818 
22  176 
27  426 

$85  420 

258  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

An  agreement  is  made  to  amalgamate  with  Joseph  Smith  and 
George  Brown,  also  trading  in  partnership,  and  sharing  profits 
respectively  2/3  and  1/3.  Their  balance  sheet  on  January  1 
is  as  below: 

Assets 
Stock  in  Trade 
Furniture 
Debtors 
Bank  of  Toronto 


Liabilities 
Creditors 
Smith 
Brown 


A  company  is  formed  to  take  over  the  business,  under  the 
name  of  Smith,  Jones  &  Company,  Limited,  with  authorized 
capital  $200,000,  divided  into  2,000  Common  shares  of  $100 
each.  George  Wilkins,  John  Lister,  and  Robert  Ryder  subscribe 
for  20  shares  each,  for  which  they  pay  cash. 

The  Jones  and  Thompson  business  is  taken  over  at  book  figures, 
except  that  good-will  is  raised  to  $10,000,  and  $1,000  is  set  up 
as  a  reserve  for  doubtful  debts.  The  Smith  and  Brown  business 
is  taken  as  shown,  with  an  addition  of  $15,000  for  good-will, 
and  $1,500  reserve  for  doubtful  debts.  The  partners  in  the  two 
businesses  are  to  take  shares  for  their  interests,  making  up  an 
even  amount  by  paying  cash  if  required.  All  cash  is  deposited 
in  the  Bank  of  British  North  America. 

Required: 

(a)  Journal  entries  to  show  the  various  transactions  inci- 
dent to  taking  over  the  businesses  and  allotment  of 
shares,  giving  the  number  of  shares  allotted  each  party 

(b)  Balance  sheet  of  Smith,  Jones  &  Company,  Limited 

(c)  Entries  necessary  to  close  the  books  of  the  partnerships. 

{From  Final  Examination  of  the  Manitoba 

Institute  of  Chartered  Accoimtants) . 


CLASSIFIED   PROBLEMS   AND   EXERCISES  259 

Gr6up  C — Corporate  Bond  Issues 
Problem  84 

The  directors  of  the  Consolidated  Railway  Company  vote  an 
issue  of  $850,000  First  Mortgage  5%  Bonds  on  March  1,  1912,  due 
in  1940.  The  entire  issue  is  subscribed  for  by  E.  H.  Sloane  & 
Company,  Investment    Bankers,  at  98,  and  paid  for  in  cash. 

Required. — Make  proper  entry  to  show  the  issue  of  the  bonds. 

Comments. — An  entry  is  made  at  the  time  of  the  sale  of  the  bonds  to 
E.  H.  Sloane  &  Co.  charging  Cash  and  Bond  Discount  and  crediting  First 
Mortgage  5%  Bonds  at  par.  The  bond  discount  will  then  be  carried  as  a 
deferred  asset  and  amortized  over  the  life  of  the  bonds,  the  entry  at  the 
end  of  each  fiscal  period  being  to  charge  Bond  Interest  and  credit  Bond 
Discount.  This  has  the  effect  of  increasing  the  amount  of  interest  paid 
each  period,  and  increases  the  nominal  rate  of  interest  5%  to  what  is  known 
as  the  effective  rate. 

When  the  bonds  are  not  all  sold  at  the  time  of  issue  an  account  may  be 
brought  on  to  the  books  for  Unissued  Bonds  and  one  for  Bonds  Authorized, 
in  the  same  manner  as  Unissued  Stock  and  Capital  Stock  Authorized.  As 
the  bonds  are  sold  they  are  credited  to  Unissued  Bonds  account.  This 
method  is  not  recommended.  It  is  usually  considered  better  practice  not 
to  bring  the  bonds  onto  the  books  until  sold. 


Problem  85 

The  Cleveland  Paper  Company,  finding  that  it  can  use  addi- 
tional capital  to  advantage,  issues  $100,000  first  mortgage  20- 
year  Gold  Bonds  bearing  5%  interest.  It  sells  these  bonds  at 
96.     J.  W.  Pittenger  buys  $10,000  of  the  bonds. 

Required: 

(a)  Proper  entry  to  record  issue  of  the  bonds  by  the  cor- 
poration 

(b)  Entry  on  Pittenger's  books  to  record  purchase  of  the 
bonds. 

Comments. — Bonds  sold  are  brought  onto  the  books  by  the  issuing 
company  at  par,  the  difference  between  that  and  the  amount  received  for 
them  being  set  up  as  Bond  Discount  or  Bond  Premium.     Bonds  purchased 


260  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

for  investment  purposes  are  usually  brought  onto  the  books  at  cost.  Pit- 
tenger  will  therefore  bring  these  bonds  on  at  cost  charging  an  Investments 
account.  If  such  bonds  are  to  be  held  until  maturity  they  should  be 
written  up  or  down  as  the  case  may  be,  the  annual  increments  being  re- 
flected through  the  income  account.  In  this  way  the  discount  or  premium 
will  be  written  off  over  the  life  of  the  bonds,  and  they  will  stand  on  the 
books  at  par  at  the  time  they  are  paid  by  the  issuing  company. 


Problem  86 
Corporation  XYZ  floated  a  series  of  150  bonds  (coupon),  par 
value  $1,000  each.  The  interest  at  5}4%  is  payable  January  1 
and  July  1.  Jones  &  Smith  took  over  a  block  of  100  of  the  bonds 
at  97^  and  accrued  interest  to  date  of  purchase  (September  24), 
and  gave  the  company  their  check  in  payment. 

Required: 

(a)  Journal  entry  on  books  of  corporation 

(b)  Journal  entry  on  books  of  Jones  &  Smith. 

Comments. — Jones  and  Smith  agree  to  pay  interest  on  the  face  of  the 
bonds  purchased  from  July  1  to  September  24  at  5H%-  In  the  corporate 
books  this  may  be  credited  to  Interest  on  Bonds,  and  in  Jones  &  Smith's 
books  may  be  charged  to  Income  from  Investments.  The  effect  of  this 
arrangement  is  that  the  corporation  pays  interest  from  the  date  of  sale  and 
the  purchaser  receives  interest  from  the  same  date. 


Problem  87 

A   municipal   corporation   sold   thirty   days   after  their  date 
$600,000  thirty-year,    6%,    Street    Improvement   Bonds   at  96 

and  accrued  interest. 

Required: 

Give  the  journal  entries  for  the  books  of  the  municipaUty 
and  state  what  final  disposition  is  to  be  made  of  the  discount. 
{From  North  Carolina  C.  P.  A.  Examinatwn) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  261 

Group  D — General  Problems  Involving  Corporate  Accounts 

Problem  88 

The  Prosperous  Company  is  organized  under  the  laws  of  the 
State  of  New  York  to  conduct  a  manufacturing  business.  The 
authorized  capital  is  $500,000,  divided  into  $250,000  Common 
and  $250,000  Preferred  Stock,  par  value  of  shares  $100.  Five 
incorporators  subscribe  each  for  one  share  of  Common  Stock  at 
face  value.  John  Peters,  one  of  the  incorporators,  purchases 
from  three  manufacturing  companies  their  complete  plants  for 
$499,500  and  transfers  said  plants  to  the  Prosperous  Company 
for  the  remaining  $499,500  of  Common  and  Preferred  stock  and 
$100,000  of  First  Mortgage  5%  Bonds  out  of  a  total  issue  of  bonds 
amounting  to  $150,000,  leaving  $50,000  of  bonds  in  the  treasury. 
The  incorporators  then  pay  in  cash  for  their  respective  sub- 
scriptions. 

The  individual  assets  acquired  are  as  follows:  Land  and 
buildings,  $75,000;  plant  and  machinery,  $200,000;  tools,  equip- 
ment, and  fixtures,  $50,000;  inventories,  $100,000;  accounts 
receivable,  good,  $28,000,  doubtful,  $5,000;  cash,  $12,000. 

Required: 

(a)  Opening  entries  for  the  books  of  the  Prosperous  Com- 
pany (Explain  fully) 

(b)  Initial   balance  sheet  showing  the  company's  financial 
condition. 

{From  New  York  C.  P.  A.  Examination) 

Comments. — It  will  be  necessary  to  set  up  an  account  with  good-will 
for  the  excess  of  the  stock  and  bonds  issued  over  the  net  value  of  the  assets 
acquired,  a  reserve  being  set  up  for  the  doubtful  accounts  receivable. 


262  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  89 

A  corporation  is  organized  to  conduct  a  manufacturing  business 
with  a  declared  capital  of  $2,000,000,  divided  into  20,000  shares 
of  the  par  value  of  $100,  of  which  15,000  shares  or  $1,500,000 
shall  be  Preferred  Stock  and  5,000  shares  or  $500,000  Common 
Stock.  The  corporation  proposes  to  issue  $500,000  in  consol- 
idated mortgage  bonds  to  be  used  toward  the  purchase  of  sundry- 
properties.  The  amount  of  capital  with  which  the  corporation 
begins  business  is  $50,000,  being  the  proceeds  of  the  sale  of  500 
shares  Preferred  Stock  for  cash. 

To  carry  out  the  purposes  of  said  corporation,  the  real  estate, 
water  power,  machinery,  good- will,  etc.,  of  certain  existing  cor- 
porations has  been  purchased  at  an  appraised  valuation  of 
$2,000,000,  viz.,  Diamond  Manufacturing  Company,  $200,000; 
Eureka  Manufacturing  Company,  $300,000;  Champion  Manu- 
facturing Company,  $500,000;  American  Manufacturing  Com- 
pany, $600,000;  Aetna  Manufacturing  Company,  $400,000,  and 
in  payment  full  paid  stock  and  bonds  have  been  issued  at  par 
on  a  basis  of  60%  in  Preferred  Stock,  20%  in  Common  Stock, 
and  20%  in  bonds. 

Materials  and  supplies  are  to  be  paid  for  in  cash  when  their 
value  is  determined. 

Required: 

The  entries  necessary  to  open  the  books  of  the  new  corpora- 
tion and  to  record  the  purchase  of  properties  as  stated. 

Comments. — It  is  assumed  that  the  500  shares  of  preferred  stock  re- 
ferred to  as  having  been  sold,  have  been  issued  and  are  outstanding, 

A  Vendee  account  should  be  opened  for  each  corporation  from  which 
properties  are  acquired,  so  as  to  bring  onto  the  books  more  complete  infor- 
mation regarding  the  purchase,  and  forestall  possible  legal  questioning 
relative  to  the  value  placed  upon  the  various  properties  acquired.     I 

Entries  such  as  above  should  be  supported  by  complete  and  carefully- 
worded  particulars  so  that  proper  statistics  will  be  available  when  desired. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  263 

•  Problem  90 

The  Norwood  Electric  Company  was  incorporated  January  1, 
1922,  for  the  purpose  of  engaging  in  the  manufacture  of  electrical 
specialties.  The  authorized  capital  stock  was  500  shares  5% 
Preferred  Stock,  par  value  $100,  and  500  shares  of  Common  Stock 
with  no  par  value. 

The  Common  Stock  was  fully  subscribed  at  $90  per  share 
and  certificates  issued  on  January  10,  at  which  time  a  10%  call 
was  made  and  payment  received  in  cash. 

The  incorporation  and  other  expenses  of  organization  amounted 
to  $500,  and  were  paid  in  cash. 

On  April  10,  the  corporation  purchased  a  patent  for  the 
sum  of  $72,000  on  the  following  terms:  $50,000  in  Preferred 
Stock  of  the  company,  $2,000  cash,  and  a  note  for  $20,000  bearing 
interest  at  the  rate  of  6%,  due  July  10. 

On  July  1  a  second  call  of  50%  on  the  subscriptions  was  made 
and  payments  received  in  cash. 

The  note  was  paid  on  July  10. 

Certain  appliances  covered  by  the  patent  were  manufactured 
and  marketed  jointly  with  the  Atlas  Manufacturing  Company. 
The  Norwood  Electric  Company's  share  of  the  profits  amounted 
to  $65,000,  which  was  received  in  cash. 

During  the  year,  interest,  salaries,  and  general  expenses 
amounting  to  $8,000  were  paid.  Wages  accrued  and  unpaid 
amounted  to  $600. 

The  Chamber  of  Commerce  of  Norwood  agreed  to  donate  to  the 
company  a  factory  site  on  consideration  that  the  corporation 
build  a  plant  costing  not  less  than  $50,000,  and  employ  therein 
at  least  40  men  for  a  period  of  3  years.  The  offer  was  accepted 
and  a  contract  was  entered  into  with  the  Suburban  Construction 
Company  to  erect  a  factory  building  at  a  cost  of  $50,000.  At 
the  end  of  the  year,  the  building  was  partly  completed,  and  cash 
payments  of  $20,000  had  been  made  to  the  contractor. 

Required: 

(a)  Journal  entries  to  record  all  of  the  above 

(b)  Balance  sheet  as  of  December  31,  1922. 

Comments. — Unissued  stock  is  not  recorded  in  this  problem  as  the 
Common  Stock  is  no  par  value  stock,  and  to  record  it  would  necessitate 
placing  an  arbitrary  value  on  same. 


264  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Attention  is  called  to  the  fact  that  the  Common  Stock  is  installment 
stock,  the  certificates  being  issued  before  payment  is  made.  Calls  made 
upon  subscriptions  should  be  recorded  so  as  to  indicate  that  calls  were 
made  and  show  the  status  of  the  Subscription  and  Call  accounts.  The 
calls  may  be  designated  as  Installment  1,  Installment  2,  etc. 

Organization  expenses  are  usually  carried  as  deferred  charges  and  written 
off  over  a  period  of  years.  In  this  instance,  the  amount  is  small  in  com- 
parison with  the  profits  and  should  be  written  off  at  once. 

A  Vendee  account  may  be  opened  so  as  to  record  details  of  piirchase  of 
patent. 

The  real  estate  donated  for  a  factory  site  should  be  carried  in  the  bal- 
ance sheet  as  a  contingent  asset,  as  the  title  does  not  vest  until  the  per- 
formance of  all  the  stated  conditions.  A  memorandum  entry  similar  to 
that  made  for  stock  donations  may  be  made  in  journal. 

Set  up  memorandum  accounts  for  the  contract  entered  into  for  the 
erection  of  the  factory,  and  charge  Building  in  Construction  for  the  pay- 
ments on  account. 


Problem  91 

H.  M.  Bradford  is  an  inventor  and  holds  patent  rights,  pro- 
cesses, and  inventions  which  are  used  by  different  companies  in 
the  manufacture  of  gas  and  electric  engines  and  electrical 
appliances.  He  decides  to  organize  a  corporation  for  the  purpose 
of  selling  gas  and  electric  engines,  pumps,  irrigation  machinery, 
and  a  full  line  of  electrical  appliances.  A  central  jobbing  house 
is  to  be  established  in  Boston,  and  selling  agencies  will  gradually 
be  opened  in  all  the  principal  cities. 

The  corporation  is  organized  under  the  laws  of  the  State 
of  Maine,  March  1,  1920,  the  incorporators  being  H.  M.  Brad- 
ford and  three  of  his  business  associates.  The  corporation  name 
is  The  H.  M.  Bradford  Co,  The  authorized  capitalization  is 
$100,000  divided  into  500  shares  of  7%  non-cumulative  Pre- 
ferred Stock,  par  value  $100  per  share,  and  500  shares  of  Common 
Stock,  par  value  $100  per  share. 

In  order  that  the  four  incorporators  may  qualify  as  directors, 
each  is  given  two  shares  of  Common  Stock.  Bradford  assigns  to 
the  corporation  all  of  his  patent  rights  and  trade  marks  in  ex- 


CLASSIFIED  PROBLEMS  AND   EXERCISES  265 

change  for  100  sh?res  of  Preferred  and  492  shares  of  Common 
Stock.  He  at  once  donates  to  the  corporation  all  of  his  Pre- 
ferred Stock  and  242  shares  of  his  Common  Stock  to  be  sold  to 
procure  working  capital.  He  also  assigns  to  each  of  the  other 
three  incorporators  for  a  private  consideration  one-fourth  of 
the  remainder  of  his  holding  of  Common  Stock. 

Russell  &  Co.,  stockbrokers,  are  engaged  to  sell  the  unissued 
Preferred  Stock  held  in  the  treasury,  their  commission  to  be 
paid  in  treasury  stock.  They  seU  to  John  Waters  50  shares  of 
the  Preferred  Stock,  taking  in  payment  real  estate  valued  at 
$3,500,  and  cash  $1,500.  For  making  this  sale,  Russell  &  Com- 
pany are  given  25  shares  of  Preferred  and  75  shares  of  Common 
Stock. 

Bradford  is  elected  general  manager  of  the  company  at  a 
salary  of  $2,000  per  year  and  traveling  expenses.  The  payments 
made  during  the  month  of  March  are  as  follows:  Office  Furni- 
ture, $200;  Office  Rent,  $50;  Bradford's  salary  for  the  month; 
Organization  Expenses  amounting  to  $250  (this  included  lawyer's 
fee,  stenographer's  services,  pubUcity,  state  corporation  fee, 
corporation  seal,  accountant's  fee,  corporation  books  of  account, 
etc). 

Required: 

(a)  Make  journal  entries  covering  the  above  transactions 
(Explain  fully) 

(b)  Prepare  trial  balance. 

Comments. — The  stock  given  to  the  incorporators  may  be  treated  as 
Organization  Expenses. 

Since  the  treasury  stock  given  to  Russell  &  Company  as  commission  for 
selling  stock  is  donated  stock,  it  need  not  appear  as  an  expense  charge  on 
the  books;  as  the  effect  of  such  a  charge  would  be  to  increase  both  expenses 
and  surplus,  one  offsetting  the  other.  Such  a  charge  is  sometimes  made, 
however,  for  statistical  purposes 


266  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  92 

The  Crowley  Manufacturing  Company  was  organized  April  1, 
1922,  with  a  capital  stock  of  $5,000,000,  one-half  Preferred  Stock 
and  one-half  Common  Stock.  Five  shares  of  Common  Stock  are 
sold  to  the  incorporators  at  par  for  cash.  The  company  issues 
to  S.  A.  Edison  $1,500,000  Preferred  Stock  and  $1,000,000  Com- 
mon Stock,  in  consideration  of  the  assignment  by  him  of  certain 
patents,  rights,  and  contracts. 

Later  Edison  agrees  to  surrender  to  the  treasurer  of  the  Crowley 
Manufacturing  Company  $1,000,000  Common  Stock  and  $500,000 
Preferred  Stock  to  be  used  for  the  development  of  the  company 
as  the  directors  see  fit.  Still  later,  Edison  agrees  with  the  Crowley 
Manufacturing  Company  to  surrender  $1,000,000  Preferred  Stock 
and  take  in  lieu  therefor  $1,000,000  in  Common  Stock.  Edison 
makes  a  further  agreement  with  the  Crowley  Manufacturing 
Company  to  deliver  to  it  all  of  the  stock  in  the  Eclipse  Company, 
appraised  at  $350,000,  and  to  pay  the  Crowley  Manufacturing 
Company  $150,000,  for  which  he  is  to  receive  $500,000  in  Pre- 
ferred Stock  of  the  Crowley  Manufacturing  Company. 

Required: 

(a)  Entries  in  general  journal  form  to  record  all  of  the 
above  transactions  on  the  books  of  the  Crowley  Manu- 
facturing Company 

(b)  Entries  to  record  above  on  the  books  of  Edison. 


Problem  93 

A  company  was  organized  with  $1,000,000  capital  stock  which 
it  placed  at  par,  and  $1,000,000  5%  bonds  which  it  sold  at  90, 
this  being  a  6%  basis.  It  paid  to  contractors,  etc.,  for  con- 
struction $1,800,000,  and  this  amount  of  investment  ran,  on  the 
average,  for  one  year  before  the  property  was  ready  for  opera- 
tion. AVhen  operation  began,  the  company  had,  therefore,  paid 
one  year's  interest  on  the  issue  of  bonds.     No  dividends  were 


CLASSIFIED   PROBLEMS  AND   EXERCISES  267 

paid  on  the  stock.  In  addition  to  the  sum  named  above,  the 
company  also  paid  $10,000  for  legal  expenses  in  connection  with 
incorporation  and  $5,000  for  franchise  and  other  fees. 

Required: 

(a)  Journal  entries  covering  above  transactions 

(b)  Balance  sheet  of  the  accounts  when  the  property  was 
ready  for  operation. 

(From  American  Institute  Exam,ination) 
Comments. — This  problem  illustrates  the  important  principle  of  capi- 
talizing expenses  incurred  during  the  construction  period.  This  is  allowed 
by  many  public  service  commissions,  and  has  the  sanction  of  good  account- 
ing practice.  Hence,  the  interest  on  the  bond  issue  before  the  property 
was  ready  for  operation  is  a  proper  charge  to  Construction. 


Problem  94 

The  Pencoyd  Iron  Works  desires  to  enlarge  its  plant.  It 
proposes  to  finance  the  undertaking  by  an  additional  issue  of 
$500,000  Common  Stock.  Stockholders  of  record  are  notified 
that  they  wiU  be  permitted  to  subscribe  to  the  new  issue  at  "par  up 
to  25%  of  their  present  holdings.  The  market  value  of  the  stock 
is  $125  a  share.  R.  G.  Wells,  who  owns  100  shares  of  Pencoyd 
stock,  does  not  wish  to  exercise  his  right  to  purchase  the  new  stock, 
and  wishes  to  sell  his  right.     What  should  he  receive  for  it? 

Required: 

(a)  Compute  the  theoretical  value  of  Wells'  stock  right 

(b)  Set    up    the  entry  that  would  appear  on  Wells'  books 
for  the  sale  of  his  right. 

Comments. — The  right  to  purchase  stock  at  a  specified  price  granted  by 
a  corporation  to  its  stockholders  before  the  stock  is  offered  to  the  public 
is  transferable,  and  may  be  sold  at  private  sale  or  through  brokers  in  the 
same  manner  as  the  stock  itself.  The  proceeds  of  such  sale  represent  a 
capital  income  and  should  be  credited  to  some  such  account  as  Sale  of 
Stock  Rights,  indicating  the  name  of  the  stock  in  each  case. 


268  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  95 

The  stockholders  of  the  Fiske  Leather  Company  approved 
the  plan  of  the  directors  to  increase  the  capital  stock  of  the  com- 
pany from  $7,200,000  to  $14,400,000  (par  value  $100).  The 
sum  total  of  assets  above  the  amount  of  capital  stock  and  debt 
is  now  more  than  $6,750,000  and  is  invested  in  plant,  working 
capital,  and  other  assets.  Under  the  stock  increase  each  stock- 
holder receives  a  stock  dividend  of  three  shares  for  each  four 
shares  held,  and  a  transferable  right  to  subscribe  at  par  for  one 
share  for  each  four  old  shares  held. 

Required: 

(a)  Using  accounts  with  Authorized  and  Unissued  Stock, 
give  entry  for  increased  capitalization 

(b)  Give  entry  for  the  declaration  and  payment  of  the 
stock  dividend 

(c)  Morse  owns  100  shares.  Give  the  amount  of  his 
dividend 

Cd)  Morse  decides  to  sell  his  "stock  rights."  Establish  a 
value  for  these  rights  on  February  28,  1921,  the 
market   value  on  that  date  being  160. 

Comments. — The  $6,750,000  excess  of  assets  over  capital  stock  and  debt 
does  not  enter  into  the  sohition.  This  refers  to  the  surplus  of  the  cor- 
poration at  the  time  of  the  increase  in  capital  and  is  given  as  a  justification 
of  same. 

It  may  be  assumed  that  before  the  new  stock  is  issued  proper  authority 
has  been  secured  from  the  state  for  the  increased  capitalization. 


Problem  96  \ 

The  American  Telegraph  and  Telephone  Company  issued  on 
March  1,  1913,  $67,000,000  of  20-year  convertible  4>^%  bonds. 
These  bonds  were  made  convertible  at  par  into  Common  Stock  of 
the  company  at  $120  per  share  (par  value  $100)  from  March  1, 
1915,  to  March  1,  1925. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  269 

September  1,  19l6,  Brown,  who  owns  $10,000  bonds,  deposits 
them  with  the  company  and  receives  in  exchange  common 
Stock. 

Required: 

(a)  The  number  of  shares  received  by  Brown,  and  assuming 
the  dividend  on  Common  Stock  to  be  8%,  the  dif- 
ference in  his  annual  income 

(b)  Journal  entry  to  record  the  conversion  on  the  books 
of  the  corporation. 


Problem  97 

Frame  any  entries  necessary  to  record  the  action  of  the  direc- 
tors as  it  appears  in  the  minutes  of  the  meeting  of  August  15, 
1917,  of  which  the  following  is  a  synopsis,  and  the  action  of  the 
officers  taken  pursuant  to  authority  conferred  on  them  by  such 
minutes: 

The  treasurer  reported  that  the  profits  for  the  year  as  audited 
amounted  to  $59,287.  Voted  that  a  dividend  of  $40,000  be 
paid  on  October  1  to  the  stockholders  of  record  September  15, 
and  that  $10,000  of  the  profits  be  appropriated  as  a  reserve  for 
relief  of  employees  disabled  while  in  the  service  of  the  United 
States  and  invested  in  Liberty  Bonds. 

The  treasurer  reported  that  he  had  an  offer  of  $1,000  in  settle- 
ment of  a  debt  of  $3,000  of  the  A.  B.  C.  Company,  which  had 
been  written  off  as  irrecoverable  in  1914.  He  was  authorized 
to  accept  the  same  in  full  settlement. 

The  president  reported  that  he  had  secured  tenders  for  new 
building  planned  in  the  amount  of  $185,000.  He  was  authorized 
to  execute  a  contract  accordingly. 

The  president  reported  that  a  firm  of  bankers  had  offered 
to  purchase  $200,000  of  the  company's  20-year  5%  bonds  to 
be  dated  October  1,  1917,  at  93  and  accrued  interest.  He  was 
authorized  to  accept  the  offer  and  deliver  bonds  on  that  date. 


270  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  Entries    to    dispose    of    profits,   dividend,  and  appro- 
priations 

(b)  Entry  to   record  settlement  with  A.  B.  C.  Co. 

(c)  Entry  to  record  execution  of  contract  for  new  building 

(d)  Entry  for  sale  of  bonds. 

{From  the  American  Institute  Examination) 


Problem  98 

A  corporation's  profits  for  the  year  ended  December  31,  1921, 
amount  to  $451,000.  The  by-laws  require  a  reserve  equal  to 
10%  of  any  dividend  paid  to  the  common  stockholders,  and  any 
surplus  remaining  after  such  dividend  has  been  paid  is  also  to  be 
applied  to  the  reserve  until  it  amounts  to  $250,000,  The  reserve 
at  December  31,  1920,  was  $156,020.  The  capital  is  $2,000,000— 
one-half  cumulative  preference  5%,  and  one-half  common,  all 
fully  paid.  On  December  31,  1921,  the  preferred  dividend  is 
2}4  years  in  arrears.  On  December  31,  1920,  Profit  and  Loss 
account  was  in  debit  $202,000. 

Required: 

State  how  you  would  dispose  of  the  profit  for  1921,  illustrat- 
ing j'our  answer  by  means  of  journal  entries. 

{From  Illinois  C.  P.  A.  Examination.) 

Comments. — This  problem  is  for  the  purpose  of  testing  the  judgment  of 
the  student.  Remember  that  the  deficit  and  the  cumulative  dividend  in 
arrears  must  be  taken  care  of  first.  The  object  should  be  to  make  such 
distribution  as  will  satisfy  both  the  common  and  the  preferred  stock- 
holders. \ 


CLASSIFIED   PROBLEMS  AND   EXERCISES  271 

'  Problem  99 

The  owner  of  300  acres  of  coal  land  organized  a  corporation 
with  $1,000,000  capital  stock  (par  $100)  deeding  his  land  to  the 
corporation  in  consideration  of  three  thousand  shares,  fully  paid. 
The  remaining  shares  were  sold  for  cash.  The  net  profit  for  the 
first  year  was  $110,000  and  a  dividend  of  8%  was  declared. 
The  dividend  having  increased  the  market  quotations  of  the  stock, 
the  stockholders  voted  to  increase  the  book  value  of  the  land 
and  mines  and  distribute  pro  rata  among  themselves  $500,000 
fully  paid  stock.  At  the  end  of  the  second  year,  the  corporation 
showed  a  loss  for  that  year  of  $100,000;  therefore,  it  was  de- 
termined to  reduce  the  capital  stock  $250,000. 

Required: 

Journal  entries  for  these  transactions  and  balance  sheet  at  the 
end  of  the  second  year. 

{From  North  Carolina  C.  P.  A.  Examination) 


Problem  100 

A  company  is  formed  at  January  1,  1922,  with  a  capital  of 
$1,750,000,  consisting  of  17,500  shares  of  the  par  value  of  $100 
each. 

Of  these,  16,250  shares  are  sold  to  subscribers  at  par  for  cash. 

The  following  is  a  summary  of  the  transactions  of  the  com- 
pany during  the  first  12  months  of  carrying  on  business: 

The  preliminary  and  formation  expenses  are  $12,500,  which 
are  paid  in  cash. 

They  purchase  freehold  and  leasehold  current  going  iron  works 
and  collieries  from  A.  B.  and  Company  for  $1,250,000. 

They  take  over  from  them  the  necessary  plant  and  machinery 
at  $375,000,  and  a  stock  of  iron,  coal,  etc.,  at  $229,250. 

The  vendors  take  in  part  payment  of  their  purchase  money 

),000  on  first  mortgage  bonds,  and  $125,000  in  shares  of  the 


272  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

company,  fully  paid.  There  is  $1,665,000  paid  to  them  in 
cash. 

The  company  expends  during  the  j-ear  $54,200  in  additions 
to  the  plant  and  machinery  by  purchases  from  sundry  creditors 
to  the  extent  of  $41,300,  and  by  pajTnents  through  Cash  account 
of  $12,900. 

They  purchase  materials  from  sundry  creditors  to  the  extent 
of  $461,500,  and  they  purchase  for  cash  to  the  extent  of  $67,310. 
They  pay  for  wages,  rents,  royalties,  tools,  wagon  hire,  repairs, 
etc.,  $842,700. 

Their  sales  from  iron  and  coal  tx)  sundrj'  debtors  amount  to 
$1,526,585.  They  receive  in  cash  from  sundry  debtors  $1,040,- 
700. 

They  draw  on  sundry  debtors  bills  to  the  extent  of  $419,740. 

They  transfer  of  the  above  amount  to  sundrj'  creditors  $54,510, 
and  the  bank  credits  their  account  with  $331,400,  the  proceeds 
of  those  discounted. 

They  pay  in  cash  to  sundry  creditors,  $231,415. 

They  accept  for  creditors,  bills  of  exchange  to  the  extent  of 
$142,110;  of  this  amount  thej^  meet  $86,005  through  their  bank- 
ing account,  the  balance  being  still  current  at  the  end  of  the 
year.  They  borrow  on  First  Mortgage  Bonds  $375,000,  which 
is  paid  into  their  banking  account  as  received. 

Thej-  pay  to  their  bankers  for  interest  and  commissions  $8,040; 
for  salaries,  office  expenses,  and  management,  $15,670;  law 
charges,  $410,  and  for  directors'  and  auditors'  fees,  $3,010. 

They  write  off  5%  from  the  original  amount  of  the  plant 
and  machinery  for  depreciation,  but  nothing  from  the  additions. 

They  also  wTito  off  the  following  amounts:  $25,000  from 
the  freehold  and  leasehold  property  to  cover  minerals  taken 
from  the  freehold  and  to  provide  for  the  expiration  of  the 
leases ;  $3,005  for  bad  debts,  and  one-fifth  from  the  preliminary 
expenses. 

The  discoimt  allowed  to  sundry  debtors  amounted  to  $5,530. 

There  is  due  at  the  close  of  the  year  $2,250  for  interest  on 
bonds,  and  the  value  of  the  stock  of  materials  then  on  hand 
is  $154,285. 

All  receipts  are  paid  into  the  bank,  and  all  payments  are 
made  Ijv  check. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  273 

Required: 

(a)  Journal    entries    covering  the  above  transactions    for 
•  the  year  (with  explanations) 

(b)  Profit  and  loss  statement 

(c)  Balance  sheet. 

{From  Illinois  C.  P.  A.  Examination) 


Problem  101 

The  X  Company  13  incorporated  under  the  Business  Corpora- 
tion Law  of  Massachusetts,  January  1,  1916,  with  an  authorized 
capital  of  $100,000.  One  share  of  stock  is  given  to  each  of  the 
three  incorporators.  A,  B,  and  C,  in  order  that  they  may  qualify 
as  directors;  five  shares  are  given  to  a  lawyer,  D,  as  comp)ensa/- 
tion  for  legal  services  performed  in  organizing  the  corporation; 
an  investment  banker  undertakes  the  sale  of  the  remainder  of 
the  stock  to  investors,  less  fifty  shares  of  stock  which  he  is  to 
receive  as  compensation  for  his  services.  The  subscription  books 
remain  open  until  March  1.  Payments  for  the  stock  are  to  be 
made  in  four  equal  instaUments  on  the  first  day  of  March,  June, 
September,  and  December. 

On  March  1,  the  banker  reports  that  all  the  stock  is  subscribed 
for  and  the  first  installment  is  called  and  paid.  Fifty  shares  of 
stock  are  issued  to  the  banker  for  his  services.  Stock  certificates 
are  issued  to  all  subscribers. 

June  1,  the  second  installment  is  called  and  paid. 

September  1,  the  third  installment  is  called  and  paid  by  all 
subscribers  except  F,  who  subscribed  for  10  shares. 

December  1,  the  fourth  and  lact  installment  is  called  and  paid, 
F  again  defaulting  on  the  pajinent  of  his  installment 

January  10,  1917,  the  treasurer  of  the  X  Company  offers  F's 
shares  for  sale  at  public  auction.  The  shares  are  sold  to  G  for 
$700.  The  expenses  of  the  sale  amount  to  $25.  A  stock  cer- 
tificate for  the  ten  shares  is  issued  to  G.     After  deducting  ex- 


274  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

penses  and  interest  on  unpaid  installments  at  6%  the  surplus 
of  the  sale  is  remitted  to  F  upon  the  surrender  of  his  certificates. 

Required: 

(a)  Make  necessary  entries  in  journal  form  to  cover  the 
above 

(b)  In  case  $400  is  the  highest  bid  at  auction  for  the 
shares  what  action  would  the  directors  take? 

(c)  Instead  of  offering  F's  shares  for  sale  at  auction,  the 
directors  elected  to  bring  action  at  law  against  him  for 
the  amount  due  from  him,  together  with  interest  thereon. 
The  action  is  entered  on  February  1,  1917,  for  $535, 
covering  interest  and  charges.  Judgment  is  obtained 
on  March  1.  At  the  end  of  thirty  days,  as  the  judg- 
ment remains  unpaid,  the  directors  declare  all  amounts 
previously  paid  by  him  forfeited  to  the  corporation, 
an  entry  of  transfer  of  the  stock  to  the  corporation 
is  made,  and  the  original  certificate  is  declared  void. 
Make  necessary  entries  in  general  journal  form. 

Comments. — This  problem  illustrates  the  method  of  realizing  upon  un- 
paid stock  subscriptions.  The  student  is  referred  to  the  Business  Corpora- 
tion Law  of  the  Commonwealth  for  the  legal  procedure  necessary.  There 
are  some  points  of  difference  between  the  method  of  procedure  in  the 
case  of  installment  stock  (stock  issued  but  unpaid)  and  ordinary  stock 
(stock  unissued  and  unpaid).     They  should  be  noted  carefully. 

Referring  to  last  paragraph  of  the  problem,  charge  the  unpaid  subscrip- 
tion and  all  expenses  to  F  personally;  credit  him  with  the  proceeds  of  sale 
of  stock,  and  remit  balance  of  his  account  in  cash. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  275 

Group  E — Corporations — Theory  Questions 

T-36 

What  are  the  distinguishing  characteristics  of  the  "corpora- 
tion" as  compared  with  other  forms  of  business  organization? 
What  privileges  does  it  carry  and  what,  if  any,  are  its  dis- 
advantages? 

{American  Institute) 


T-37 

(a)  Explain  the  books  and  accounts  needed  by  a  corporation 
that  are  not  needed  by  a  firm. 

(b)  Name  the  various  kinds  of  stock  and  explain  what  the 
different  kinds  represent. 

(c)  How  would  the  following  affect  the  individual  holders  or 
subscribers :  secret  reserves,  excessive  dividends,  bankruptcy,  and 
voluntary  dissolution  of  the  corporation? 

(Michigan  C.  P.  A.) 


T-38 

A  corporation  is  under  contract  to  furnish  pure  water.  Owing 
to  its  present  source  of  supply  becoming  polluted  it  is  obliged 
to  install  a  plant  to  pipe  water  from  a  great  distance,  the  old 
plant  being  abandoned.  The  abandoned  plant  is  carried  on  the 
company's  books  at  $100,000.  The  new  plant  will  cost  $200,- 
000.  The  new  water  supply  will  be  the  same  as  regards 
quantity  with  no  increase  in  the  rates.  How  would  you  treat 
the  above  as  regards  capital  and  income? 

(North  Carolina  C.  P.  A.) 


T-39 

A  corporation  is  formed  to  engage  in  manufacturing.     Pend- 
ing the  sale  of  underwritten  capital  stock,  money  is  borrowed 


276  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

for  the  erection  and  equipment  of  a  plant.     How  should  the 
interest  on  this  loan  be  treated  in  the  books  of  account? 

(North  Carolina  C.  P.  A.) 


A  Massachusetts  corporation  in  need  of  funds  makes  the  fol- 
lowing arrangement  with  three  of  its  directors.  They  indi- 
vidually pledge  their  stock,  par  value  $15,000,  $10,000,  and 
$5,000,  and  receive  loans  of  $7,500,  $5,000,  and  $2,500,  with 
which  they  purchase  new  stock  at  par.  It  is  their  intention, 
when  the  loans  are  paid  by  the  corporation,  to  return  this 
$15,000  worth  of  stock. 

(a)  May  this  stock  be  purchased  by  the  company? 

(b)  What  should  be  the  entries  on  the  books  of  the  corpora- 
tion? 

(Massachusetts  C.  P.  A.) 


T-41 

(a)  When  may  the  account  "Treasury  Stock"  properly  be 
raised  on  the  books  of  a  corporation? 

(b)  What  relation  does  authorized  but  unissued  capital  stock 
l)oar  to  the  accounts  of  a  corporation? 

(Ohio  C.  P.  A.) 


T-42 

You  find  that  a  corporation  has  purchased  one  thousand 
dollars  worth  of  its  own  stock  for  nine  hundred  dollars.  The 
bookkeeper  has  made  an  entry  debiting  Treasury  Stock  for 
$900.  If  the  entry  is  right,  explain  in  detail  the  reason.  If 
wrong,  make  the  correcting  entry  and  explain  in  detail  why  it 
was  wrong  and  why  yours  is  right. 

(Michigan  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND   EXERCISES  277 

•  T-43 

What  are  organization  expenses?  How  are  they  to  be  treated 
in  accounts?  At  what  point  do  expenses  cease  to  be  organization 
expenses  and  become  operating  expenses? 

Is  the  deficiency  in  the  early  years  of  a  corporation's  activi- 
ties (whether  an  actual  loss  or  a  deficiency  between  the  earnings 
and  the  normal  rate  of  return)  similar  to  organization  expenses? 
How  should  such  deficiencies  be  treated  in  the  accounts?  To 
what  extent  is  such  a  deficiency  similar  to  interest  paid  during 
construction?  Should  such  deficiencies  be  carried  on  the  bal- 
ance sheet?  If  so,  should  they  be  written  off,  and  how  and 
when?  May  the  deficiencies  representing  the  difference  between 
actual  earnings  and  normal  rate  of  return  be  capitalized,  in  the 
strict  sense  of  having  capital  stock  issued  to  a  corresponding 
sum?  State  clearly  just  who  is  affected,  and  how,  by  the  dif- 
ferent methods  of  treating  the  items  mentioned  above. 

(American  Institvie) 


T-44 

The  Central  Manufacturing  Company,  with  a  capital  of 
$200,000  (2,000  shares,  par  100),  owns  1,000  shares,  par  100,  in 
the  General  Manufacturing  Company  whose  capital  is 
$200,000  (2,000  shares,  par  100).  The  Central  Manufacturing 
Company  increases  to  $400,000  capital  and  takes  over  the 
General  Manufacturing  Company  share  for  share. 

Are  the  Central  Manufacturing  Company  shares  which 
come  in  place  of  the  General  Manufacturing  Company 
shares  "Treasury  Stock"  or  "Stock  not  Issued?" 

State  an  argimient  or  reason  or  authority  for  your  answer. 

(MassachiiseUs  C.  P.  A.) 


T-4S 

(a)  How  would  you  deal  in  the  balance  sheet  of  a  corporation 
with  shares  recovered  from  a  vendor  to  whom  they  had  been 
issued  as  fully  paid  and  who  had  returned  them  in  settlement  of 
a  claim  for  fraudulent  misrepresentation  in  respect  of  the  prop- 
erty sold  by  him  to  the  corporation? 


278  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

(b)  How  would  you  deal  with  these  shares  for  the  purposes 

of  a  dividend? 

{American  Institute) 


T-46 

When  a  corporation  undertakes  its  own  construction  work  on 
what  basis  is  it  permissible  for  it  to  make  charges  to  Property 
account  in  respect  thereof?  On  what  basis  would  you  person- 
ally recommend  that  the  charges  should  be  made? 

Give  your  reasons. 

{American  Institute) 


T-47 

Three  persons  (A,  B,  and  C)  after  two  weeks  of  negotiations 
agree  on  July  15  to  buy  the  business  of  John  Doe  Company  (a 
manufacturing  corporation)  and  to  take  over  the  assets  as  of 
July  1,  1915,  and  assume  the  results  of  operations  from  July  1. 
A,  B,  and  C  form  a  new  corporation  on  July  31  which  acquires 
the  business  through  A,  B,  and  C  as  of  July  1.  The  result  of 
the  business  for  the  month  was  a  profit  of  $25,000.  How 
should  this  profit  be  treated  in  the  accounts  of  the  new  corpora- 
tion?    Give  reasons. 

(Massachusetts  C.  P.  A.) 


T-48 

A  corporation  on  September  1,  1920,  issued  $5,000,000  5-year 
6%  convertible  notes,  redeemable  at  105  and  interest  in  whole 
or  in  part  on  GO  days'  notice,  subject  to  the  right  of  conversion 
into  the  stock  of  the  company  at  the  rate  of  10  shares  of  stock 
for  each  $1,000  par  value  of  notes,  the  said  stock  having  no 
par  value.  December  31,  1921,  the  company  reported  $735,- 
000  notes  converted  into  stock  at  the  above  rate.  They  also 
purchased  on  open  market  $2,000,000  notes  at  105  and  accrued 
interest.  Give  entries  covering  above  and  state  how  the  items 
would  appear  on  the  balance  sheet  as  of  December  31,  1921. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  279 

Group  F — Theory  Questions — Corporate  Stock  Issues 

T-49 

Describe  the  method  of  determining  the  number  of  shares  of 
capital  stock,  both  common  and  preferred,  held  by  each  of  the 
several  stockholders  of  a  corporation,  giving  fully  the  titles  of 
the  books  wherein  the  facts  are  registered  and  stating  how  the 
books  are  opened  and  operated. 

(Virginia  C.  P.  A.) 


T-50 

(a)  What  various  factors  determine  the  desirable  amount  of 
authorized  capital  stock? 

(b)  Should  good- will  ever  be  capitalized? 


T-51 

In  its  prospectus  a  corporation  represents  that  it  has  an  issue 
of  "cumulative,  non- voting,  non-participating,  six  per  cent  pre- 
ferred stock." 

Give  your  interpretation  of  this  expression, 

(Massachusetts  C.  P.  A.) 


T-52 

In  setting  up  the  balance  sheet  of  a  corporation  which  has 

an  issue  of  100,000  shares  of  stock  of  no  par  value,  but  a  stated 

value  of  $5  a  share,  and  an  excess  of  assets  over  liabilities  of 

$1,500,000,   how  would  you  show  the  capital  on  the  balance 

sheet? 

(American  Institute) 


280  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-53 

(a)  A  company  with  $500,000  of  Common  Capital  Stock,  par 
value  $100  per  share,  and  a  Surplus  account  of  $100,000  decides 
to  change  its  capitalization  from  a  par  to  a  no-par  basis.  It 
therefore  calls  in  its  5,000  shares  of  par  value  stock  and  issues 
in  place  thereof  10,000  shares  of  no-par  value  stock.  How 
should  the  transaction  be  recorded?  What  effect,  if  any,  will 
the  change  to  a  no  par  value  basis  have  on  the  surplus  account? 

(b)  Suppose  that  a  new  company  is  organized  with  10,000 
shares  of  no  par  value  stock  and  that  this  new  company  takes 
over  all  the  assets  and  liabilities  of  the  old  company  at  their 
book  value,  issuing  all  of  its  capital  stock  in  payment  therefor. 
How  would  the  transaction  be  recorded  on  the  books  of  the 
new  company? 

{American  Institute) 


T-54 

(a)  A  and  B,  partners,  organize  a  corporation  with  a  capital 
stock  of  $500,000,  to  take  over  their  business.  The  corporation 
issues  its  entire  capital  stock  to  A  and  B  in  payment  for  their 
plant  and  equipment,  which  is  valued  at  $300,000.  The  entry 
recording  this  transaction  is  as  follows: 

Plant  $500  000 

To  Capital  Stock  $500  000 

For  the  purpose  of  furnishing  working  capital  A  and  B  each 
donates  to  the  corporation  $100,000  of  their  stock.  What  entry 
would  you  suggest  to  show  the  exact  state  of  affairs  at  this 
point? 

(b)  Assuming  the  plant  to  be  valued  at  $500,000,  give  the 
proper  entry  to  record  the  stock  donation. 

Give  reasons  for  your  entries. 

{Kansas  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  281 

•  T-55 

(a)  State  the  purpose  for  which  subscription  privileges  or 
"rights  "  may  be  given  stockholders. 

(b)  How  may  a  stockholder  use  the  "right?" 

(c)  What  is  the  value  of  a  "right"  in  the  following  case: 
The  par  value  of  the  outstanding  capital  stock  of  a  corporation 

is  $1,000,000,  market  value  $150  per  share.  The  stockholders 
of  a  certain  date  are  offered  $500,000  more  of  this  same  class  of 
stock  at  $125. 

{Wisconsin  C.  P.  A.) 


T-56 

A  corporation  is  organized  with  an  authorized  capital  stock 
of  $50,000  of  which  only  $40,000  is  sold,  and  stock  certificates 
issued  therefor.  Conflicting  methods  of  recording  the  capital 
stock  on  the  books  are  urged  by  rival  accountants  as  follows: 

(a)  Treasury  Stock  to  Capital  Stock,  $50,000.  Cash  and 
Properties  to  Treasury  Stock,  $40,000. 

(b)  Cash  and  Properties  to  Capital  Stock,  $40,000. 

Which  method  is  the  better,  and  why?  Can  you  suggest 
another  method  of  recording  this  transaction? 

(Adapted  Maine  C.  P.  A.) 


T-57 

The  following  paragraphs  have  appeared  in  recent  announce- 
ments of  stock  issues.  Comment  upon  each  of  them,  including 
the  specific  points  mentioned  below. 

(a)  "The  First  Preferred  7%  stock  is  redeemable  by  lot  at 
110  and  accrued  dividend  on  four  weeks'  notice."  In  your 
comment,  state  the  exact  value  of  this  feature  to  the  investor. 

(b)  "Net  tangible  assets  are  $287  per  share  and  net  quick 
assets  exceed  $125  per  share  of  First  Preferred  Stock,  and  no 
dividends  shall  be  declared  and  paid  upon  common  shares,  which 
will  reduce  the  net  quick  assets  below  $110  for  each  share  of 
First  Preferred  Stock  then  outstanding."     In  your  comment, 


282  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

state  exactly  what  these  terms,  "net  tangible  assets"  and  "net 
quick  assets, "  mean. 

(c) 

Capitalization 

7%  Cumulative  Preferred  Stock  ($100  par)  $25  000  000  00 

Common  Stock  ($15  par)  15  000  000  00 

Founders'  Stock  (No  par  value)  100  000  00 

In  your  comment,  discuss  Founders'  shares  in  its  various  aspects 

— purpose  of  issue,  voting  rights,  payment  for  stock,  right  to 

dividends,  etc. 

{Wisconsin  C.  P.  A.) 


T-58 

An  expression  of  your  opinion  is  desired  regarding  the  follow- 
ing: Is  it  legal  or  sound  business  policy  to  declare  a  dividend 
out  of  current  earnings  while  capital  is  impaired? 

Is  it  ever  justifiable  to  pay  dividends  with  borrowed  money? 

(American  Institute) 


T-59 

The  Directors  of  the  A  company  are  contemplating  a  preferred 
stock  issue,  and  are  confronted  with  the  proposition  of  making 
the  preferred  issue  attractive  to  investors  and  at  the  same  time 
protecting  their  own  equity  as  common  stockholders. 

After  making  an  audit  of  the  A  company,  an  appraisal  was 
made  which  showed  that  the  assets  were  worth  double  the  book 
value.  It  thereby  doubled  the  value  of  the  authorized  common 
stock  outstanding. 

(a)  If  the  directors  asked  your  advice  as  to  doubling  the 
authorized  common  stock  of  the  corporation  by  the  declaration 
of  a  stock  dividend,  what  would  you  reply? 

(b)  If  the  directors  asked  your  opinion  as  to  the  advisability 
of  changing  the  common  stock  from  a  par  value  basis  to  the 
non-par  basis,  what  reasons  would  you  give  in  reply? 

(Wisconsin  C.  P.  A.) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  283 

T-60 

A  corporation  has  two  classes  of  stock  fully  issued: 

$5,000,000 — 7%  Cumulative  Preferred  as  to  dividend  and 
assets.     10%  dividends  are  in  arrears. 

$12,000,000 — Common,  on  which  no  dividend  has  been  paid. 

The  corporation  proposes  to  retire  by  purchase  $2,000,000 
common.  What  would  be  the  effect,  if  any,  on  the  interest  of 
the  preferred  stockholders?  Give  reasons  supporting  your 
answer. 

{Massachusetts  C.  P.  A.) 


T-61 

(a)  How  would  you  treat  money  received  on  stock  subscrip- 
tions from  persons  who  afterward  forfeited  their  stock  by  non- 
payment of  other  installments? 

(b)  A  company  buys  $5,000  of  its  own  stock  for  $4,000. 
The  entry  that  is  made  debits  Treasury  Stock  $5,000,  credits 
cash  $4,000  and  credits  Loss  and  Gain  $1,000.  State  why 
you  approve  or  disagree. 

(Michigan  C.  P.  A.) 


T-62 

A  corporation  is  authorized  to  sell  its  preferred  stock  at  par 
value  of  $100  and  with  every  four  shares  sold  is  permitted  to 
give  a  25%  bonus  in  common  stock,  that  is,  one  share  of  common 
stock  free.  State  how  this  bonus  stock  would  be  shown  in  the 
financial  statements  at  the  close  of  the  fiscal  period. 


284  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  G — Theory  Questions — Dividends 
T-63 

What  is  a  dividend?  State  when  and  how  dividends  become 
effective.  State  how  declaration  and  payment  of  dividends  are 
usually  recorded  in  books  of  account. 

{Michigan  C.  P.  A.) 


T-64 

Give  journal  entry  to  express  the  declaration  of  a  dividend. 
How  would  you  treat  unclaimed  dividends? 

Can  you  mention  any  distinction  between  dividends  declared 
out  of  income  and  dividends  declared  out  of  profits  realized  from 
the  increment  of  invested  values? 

{American  Institute) 


T-65 

What  do  you  understand  by  the  term  "Dividends  Paid  out  of 
Capital?"  What  in  your  opinion  would  constitute  such  pay- 
ment, and  mention  any  circumstances  that  may  occur  to  you  to 
justify  such  payment? 

{Maryland  C.  P.  A.) 


T-66 

The  Bruce  Company  started  in  business  with  the  following 
capitalization,  viz. :  10,000  shares,  par  value  each  $25  of  non- 
cumulative  7%  stock  and  6,000  shares  common  stock  of  the 
same  par  value.  When  it  began  business  the  liabilities  of  the 
company  exceeded  its  actual  assets  by  $12,000,  which  it  carried 
in  a  Suspense  account. 

Three  years  elapsed  during  which  some  losses  were  made  and 
charged  to  Profit  and  Loss  which  showed  a  credit  balance  of 


CLASSIFIED  PROBLEMS  AND  EXERCISES  285 

$15,000.  You  are  called  in  to  settle  a  dispute  which  has  arisen 
between  the  preferred  and  common  stockholders  as  to  the  dis- 
position of  this  balance,  the  preferred  holders  claimed  it  should 
be  used  to  extinguish  the  Suspense  account  and  the  common 
holders  that  it  should  be  used  to  pay  them  a  10%  dividend. 
What  would  you  advise  and  why?     Answer  fully. 

(Maryland  C.  P.  A.) 


T-67 

Discuss   preferred   shareholders'    right   to   recover  from    cor- 
poration when  dividend  is  earned  but  not  declared. 

(Wisconsin  C.  P.  A.) 


T.68 

Discuss  the  subject  of  dividends: 

(a)  When  declared  out  of  premium  secured  from  sale  of  cap- 
ital stock, 

(b)  When  company's  sole  investments  are  in  diminishing  (or 
wasting)  assets. 

(Wisconsin  C.  P.  A.) 


T-69 

A  corporation  was  formed  which  acquired  several  plants, 
issuing  therefor  S17,000,000  bonds  and  $24,000,000  stock.  It 
was  well  known  at  the  time  that  this  capitalization  exceeded 
the  true  value  of  the  assets  (including  good-will)  acquired,  to  an 
extent  of  $11,000,000.  In  the  first  year,  after  paying  expenses 
and  interest  on  bonds,  the  business  yielded  considerable  net 
income.  May  such  net  income  be  used  to  pay  dividends,  or 
must  it  be  first  applied  towards  making  up  the  $11,000,000? 

(American  Institute) 


286  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-70 

In  view  of  the  Supreme  Court  decision  that  stock  dividends 
are  not  income,  it  is  probable  that  many  stock  dividends  will  be 
declared  within  the  near  future.     Summarize : 

(a)  The  reasons  for  issuing  stock  dividends. 

(b)  The  reasons  against  issuing  stock  dividends. 

(c)  The  decision  of  the  Court  as  to  why  stock  dividends  are 
not  income. 

(d)  If  a  corporation  is  organized  with  capital  stock  of  no  par 

value,  summarize  the  reasons  why  stock  dividends  would,  or 

would  not  be  declared. 

(Wisconsin  C.  P.  A.) 


T-71 

• 

The  preferred  stock  of  a  corporation  is  entitled  to  cumulative 
dividends  at  7%  per  annum.  For  the  past  ten  years  the  com- 
pany has  paid  dividends  on  this  stock  at  the  rate  of  5%  per 
annum.     How  should  the  arrears  of  dividends  appear  on  the 

company's  balance  sheet? 

(Massachtisetts  C.  P.  A.) 


T-72 

A  corporation  has  an  issue  of  $100,000  of  cumulative  preferred 
stock  bearing  6  per  cent  dividends.  No  dividends  have  been 
paid  for  two  years.  How  would  you  disclose  the  facts  in  a 
balance  sheet  dated  December  31,  1920,  if 

(a)  A  dividend  of  $12,000  on  the  preferred  stock  was  declared 
on  December  27,  payable  January  15,  and  there  is  a  remaining 
surplus  of  $5,000? 

(b)  No  dividends  have  been  declared  and  there  is  a  surplus 
of  $17,000. 

(c)  No  dividends  have  been  declared  and  there  is  a  surplus 
of  $4,000? 

(d)  No  dividends  have  been  declared  and  there  is  a  deficit 
of  $7,000? 

(American  Institute) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  287 

Group  F — Liquidation  of  Corporations 

Problem  102 

The  Doylestown  Hardware  Company,  because  of  competi- 
tion, is  forced  into  liquidation.  The  balance  sheet  of  the  cor- 
poration on  January  1,  1922,  is  as  follows: 

THE  DOYLESTOWN  HARDWARE  COMPANY 


Balance  Sheet- 

-January  1,  1922 

Assets 

Liabilities 

Store  and  Equipment 

$20  000 

Notes  Payable 

$  6  000 

Office  Furniture 

2  000 

Accounts  Payable 

17  000 

Inventory 

12  000 

Capital  Stock 

50  000 

Notes  Receivable 

5  000 

Accounts  Receivable 

30  000 

Cash 

4  000 
$73  000 

$73  000 

The  cash  book  showed  the  results  of  liquidation  to  be  as  follows: 

Cash  Receipts: 

Store  and  Equipment,  $25,000;  Office  Furniture,  $1,200;  Stock  in  Trade, 
$7,500;  Notes  Receivable,  $3,500;  Accounts  Receivable,  $21,000. 

Cash  Payments: 

Notes  Payable,  $6,000;  Interest  on  Notes  Payable,  $90;  Accounts  Pay- 
able, $17,000;  Expenses,  $3,500. 

The  legal  formalities  have  been  complied  with,  and  the  charter  sur- 
rendered. 

Required: 

Journal  entries  to  effect  liquidation  and  close  the  books  of 
the  corporation. 

Comments. — The  work  required  in  this  problem  is  entirely  in  the  form 
of  journal  entries  and  care  should  be  used  in  stating  the  entries  and  the 
particulars  for  each  entry. 

The  problem  is  for  the  purpose  of  illustrating  the  entries  necessary  to 
close  the  books  of  a  liquidated  corporation.  The  procedure  in  this  case  is 
as  follows: 

(1)  Debit  Cash  with  amount  received  in  realizing  on  the  assets  and 
credit  the  various  asset  accounts; 

(2)  Charge  the  various  liability  and  expense  accounts,  and  credit  Cash 
for  amounts  paid  for  expenses  and  in  liquidation  of  the  liabilities; 

(3)  Close  the  profit  realized  from  the  sale  of  store  and  equipment  into 


288  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

a  Profit  and  Loss  in  Liquidation  account  by  debiting  Store  and  Equipment 
account  and  crediting  Profit  and  Loss  in  Liquidation; 

(4)  Close  the  losses  sustained  in  realizing  on  the  remaining  assets  into 
the  Profit  and  Loss  in  Liquidation  account  by  charging  this  account  and 
crediting  the  accounts  with  assets  disposed  of  at  less  than  book  value; 

(5)  Close  the  expenses  incurred  during  the  period  of  liquidation  into 
Profit  and  Loss  in  Liquidation  by  debiting  this  account  and  crediting  the 
detailed  expense  accounts; 

(6)  Transfer  the  loss  incidental  to  liquidation  of  the  business  from  the 
Profit  and  Loss  in  Liquidation  account  to  a  Deficit  account; 

(7)  Charge  Capital  Stock  account  and  credit  a  Stockholders  account  for 
the  capital  stock  of  the  corporation  and  charge  Stockholders  and  credit 
Deficit  as  follows: 

Capital  Stock  $50  000 

Stockholders  $50  000 

Stockholders  00  000 

Deficit  00  000 

(8)  The  final  entry  is  to  record  the  distribution  of  proceeds  of  liquidation 
to  stockholders  by  debiting  Stockholders  and  crediting  Cash.  After  making 
this  entry,  all  accounts  should  be  in  balance. 


Problem  103 

The  following  is  the  trial  balance  of  the  Rawdeal  Corporation, 
June  1,  1920,  on  which  day  the  directors  resolve  that  the  secre- 
tary of  the  corporation  be  authorized  to  call  a  meeting  of  the 
stockholders  to  vote  on  the  immediate  dissolution  of  the  company. 

Trial  Balance — June  1,  1920 

Land  and  Building  $  55  000 

Machinery  and  Machine  Tools  35  000 

Shop  and  Hand  Tools  5  000 

Furniture  and  Fixtures  9  700 

Raw  Materials  10  350 

Accounts  Receivable  23  400 

Cash  11  320 
Bond  (Secured  by  6%  Mortgage  on  Land  and  Build- 
ing)                                                                                                          $  26  000 
Interest  Accrued  on  Bond                                                                                  312 


$21  700 

5  300 

9  000 

4  100 

23  358 

60  000 

$149  770 

$149  770 

CLASSIFIED  PROBLEMS  AND   EXERCISES  289 

Accounts  Payable        , 

Reserve  for  Depreciation  of  Building 

Reserve  for  Depreciation  of  Machinery 

Reserve  for  Depreciation  of  Furniture  and  Fixtures 

Surplus 

Capital  Stock 


The  stockholders'  meeting  was  held  on  July  1,  1920,  and  dis- 
solution was  voted. 

The  company  sold  the  land  and  building  to  the  mortgagee  for 
$44,000  as  of  August  15,  1920. 

On  September  1,  1920,  the  cash  book  showed: 

Debits : 

Land  and  Building,  $17,363;  Machinery,  $25,340;  Shop  and 
Hand  Tools,  $2,100;  Furniture  and  Fixtures,  $3,700;  Raw 
Materials,  $7,950;  Accounts  Receivable,  $23,130. 

Credits : 

Accounts  Payable,  $21,700;  Expenses,  $1,530.20. 

Required: 

Journal  entries  to  effect  dissolution  and  close  the  books  of 
the  corporation. 

{Adapted  from  New  York  C.  P.  A.  Examination) 

Comments. — The  procedure  in  this  problem  is  similar  to  that  in  the 
preceding  problem.  It  will  be  necessary,  however,  to  close  the  Reserve 
accounts  into  the  correlative  asset  accounts  so  as  to  arrive  at  the  book 
value  of  the  assets  before  transferring  the  profit  or  loss  on  realization  to 
the  Profit  and  Loss  in  Liquidation  account. 

The  loss  on  liquidation  as  shown  by  the  Profit  and  Loss  in  Liquidation 
account  in  this  case  is  transferred  to  Surplus  account,  and  the  balance  of 
Surplus  is  then  credited  to  the  stockholders. 

As  the  Land  and  Building  wa.s  sold  to  the  mortgagee,  the  Bond  and 
Interest  Accrued  on  Bond  accounts  should  be  offset  against  the  asset 
account.  Land  and  Buildings,  before  closing  that  account.  The  ca.sh  re- 
ceived for  the  Land  and  Building,  $17,633,  represents  the  difference  between 
the  purchase  price  $44,000  and  the  Bond  account  plus  accrued  interest  to 
date  of  sale.  It  would  be  well,  therefore,  to  make  an  entry  charging  Bond 
Interest  and  crediting  Interest  Accrued  on  Bond  for  $325,  the  interest 
from  June  1  to  August  15,  two  and  one-half  months  at  6  per  cent.  The 
total  interest  would  then  be  credited  to  Land  and  Building  account  as 
indicated  above. 


290 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Group  G — Amalgamations  and  Mergers  of  Corporations 

Problem  104 

Corporation  C  is  organized  in  Massachusetts  with  an  author- 
ized Capital  Stock  of  $500,000,  divided  equally  between  Preferred 
and  Common  stock,  the  shares  being  of  the  par  value  of  $100 
each.  Sufficient  shares  of  Common  Stock  are  subscribed  and 
paid  in  cash  to  effect  the  incorporation,  and  a  contract  is  entered 
into  for  the  taking  over  of  the  business  of  Corporation  A  and 
of  Corporation  B,  the  balance  sheets  of  which,  at  the  time  of 
the  transfer,  displayed  financial  condition  as  follows: 


Corporation  A 

Assets 

Liabilities 

Plant  and  Machinery 

$  35  000 

Common  Stock 

$  50  000 

Raw  Material 

6  500 

Preferred  Stock 

42  500 

Work  in  Process 

9  200 

Preferred  Stock  Scrip 

7  500 

Finished  Product 

16  700 

Surplus 

5  400 

Accounts  Receivable 

33  500 

Accounts  Payable 

14  200 

Notes  Receivable 

14  500 

Deferred  Charges 

1  200 

Cash 

3  000 

$119  600 


$119  600 


Assets 


Corporation  B 


Plant  and  Machinery  $  51   000 
Inventor}'  of  Merchan- 
dise 32  000 
Accounts  Receiva])lc  47  500 
Cash  1  000 


$131  500 


Liabilities 


Capital  Stock 
Accounts  Payable 


$100  000 
31  500 


$131  500 


The  contract  provides,  in  settlement  for  the  properties  and 
businesses  acquired,  that  preferred  stock  be  issued  in  each  case 
to  the  extent  of  the  excess  of  the  asset  values,  as  stated,  over  the 
liabilities,  and  that  an  equal  amount  of  common  stock  be  issued 
in  payment  for  the  good-will. 

Required: 

(a)    Opening  entries  for  C  and  journal    entries    to   record 
the  taking  over  of  the  accounts  of  Corporations  A  and  B 


CLASSIFIED   PROBLEMS  AND  EXERCISES  291 

(b)  Balance  pheet   cf  Corporation  C  after  recording    the 
above 

(c)  Entries  to  close  the  Books  of  A. 

(Adapted  from  New  York  C.  P.  A.  Examination) 

Comments. — This  problem  illustrates  the  tj-pe  of  consolidation  in  which  a 
new  company  is  formed  to  take  over  the  assets  and  liabilities  of  the  A  and  B 
Corporations,  which  are  then  dissolved. 

Make  opening  entry  for  C  in  the  usual  form.  If  in  doubt  as  to  the 
number  of  shares  neces.sary  "to  effect  the  incorporation"  consult  the  Business 
Corporation  Law. 

In  taking  over  the  assets  of  the  Corporations  A  and  B,  it  will  be  necessary 
to  bring  on  the  good- will  purchased  with  Common  Stock  as  per  agreement. 
This  provision  should  be  carefully  noted.  Deferred  Charges  listed  as  an 
asset  by  Corporation  A  may  be  assumed  to  be  prepaid  expenses,  and,  as 
such,  are  properly  chargeable  as  an  asset  in  the  accounts  of  C.  Credit  the 
Vendor  for  assets  taken  over  including  good-will,  and  charge  him^with  liabil- 
ities assumed  and  stock  issued  in  payment  for  net  assets  as  per  contract. 

In  closing  A  Company's  books,  open  a  Vendee  account,  charging  same 
with  assets  and  crediting  with  liabiUties,  also  charge  Vendee  with  good- 
will, crediting  same  to  Capital  Surplus.  The  stock  received  from  C  is 
then  debited  and  Vendee  credited,  balancing  the  latter  account. 

The  Surplus  and  Capital  Stock  accounts  are  then  closed  into  a  Stock- 
holders account.  An  entry  to  record  distribution  of  stock  is  now  made, 
closing  all  accounts. 


Problem  105 

The  Arnold  Manufacturing  Company,  v/ith  $1,000,000  capital 
stock;  The  Burke  Manufacturing  Company,  with  $500,000  cap- 
ital stock,  and  the  Crown  Manufacturing  Company,  with 
$400,000  capital  stock,  agree  to  consoHdate  as  the  Great  Lakes 
Manufacturing  Company,  the  new  company  to  buy  all  the 
properties  of  the  old  companies,  at  a  valuation  to  be  fixed  by 
appraisal,  payment  therefor  to  be  made  in  fully  paid  stock  of 
the  new  company,  the  old  companies  to  pay  off  their  own 
indebtedness : 

The  appraisal  values  of  the  old  companies  are  as  follows: 


292  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Total  Arnold  Burke         Crown 


Real  Estate  and  Building    $1 

133  000 

$ 

680  000 

$327  000 

$  26  000 

Plant 

621  000 

390  000 

160  000 

71  000 

Cash 

19  000 

15  000 

3  000 

1  000 

Notes  Receivable 

16  000 

10  000 

6  000 

Horses  and  Wagons 

8  500 

4  000 

3  000 

1  500 

OflBce  Furniture 

2  500 

1  000 

1  000 

500 

$1 

800  000 

$!_ 

100  000 

$500  000 

$200  000 

On  this  valuation,  the  Great  Lakes  Manufacturing  Company 
issued  $2,000,000  of  stock,  shares  $100  each,  which  was  divided 
pro  rata  among  the  old  companies  on  the  basis  of  their  appraised 
value,  no  fractional  shares  of  stock  to  be  issued,  odd  amounts 
to  be  paid  old  companies  in  cash. 

At  the  time  of  the  consolidation,  the  ledger  accounts  of  the 
Crown  Manufacturing  Company  were  as  follows: 


Real  Estate  and  Build- 

Capital Stock 

$400  000 

ings 

$250  000 

Notes  Payable 

50  000 

Plant 

247  000 

Accounts  Payable 

51  000 

Cash 

1  000 

Horses  and  Wagons 

1  800 

Furniture 

1  200 
$501  000 

$501  000 

Required: 

(a)  Journal  entries  necessary  to  set  up  property  accounts 
and  credit  old  companies  with  their  pro  rata  on  books 
of  new  company 

(b)  The  proper  journal  entries  to  liquidate  in  stock  of  the 
new  company  the  liabilities  other  than  capital  stock 
and  to  apportion  the  remaining  stock  and  cash,  and 
to  close  the  books  of  the  Crown  Manufacturing  Com- 
pany. 

Comments. — This  problem  presents  little  that  is  new.  Open  books  of 
the  Great  Lakes  Manufacturing  Company  in  the  usual  manner.  Bring 
on  assets  acquired  at  appraised  value,  and  set  up  good-will  for  excess  of 
stock  issued  over  appraised  value  of  assets,  credit  the  vendor  corpora- 
tions with  the  appraised  value  of  their  assets  plus  a  pro  rata  share  of  the 
good-will.  Note  the  provision  regarding  fractional  shares  of  stock.  An 
account  may  be  opened  with  the  odd  share  of  stock  under  the  title  of 
"Vendor-s'  Stock."  This  account  is  credited  when  the  odd  share  is  sold 
and  the  cash  is  distributed  to  vendors  in  proper  ratio. 

The  procedure  for  closing  Crown  Manufacturing  Company  books  is  simi- 
lar to  that  outlined  for  Problem  104. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 
Problem  106 


293 


The  Newtown  Gas  Company  had  operated  a  gas  plant  for 
several  years  for  the  purpose  of  supplying  local  consumers. 
On  January  1,  1920,  the  United  Gas  Corporation  was  incor- 
porated for  the  purpose  of  acquiring  various  local  plants  and 
merging  them.  The  capital  stock  of  the  United  Corporation 
was  SI, 000,000.  First  Mortgage  6%  bonds  were  authorized  to 
the  extent  of  $500,000.  The  United  Corporation  acquired  all 
of  the  capital  stock  of  the  Newtown  Company,  issuing  therefor 
$100,000  of  its  capital  stock  and  $50,000  bonds.  On  April  1, 
1920,  the  Newtown  Company  was  taken  over  and  a  new  set  of 
books  opened.  At  the  date  of  the  merger,  the  balance  sheet  of 
the  Newtown  Company  stood  as  follows: 

THE  NEWTOWN  GAS  COMPANY 
Balance  Sheet— April  1,  1920 


Assets 

Liabilities 

Cash 

$  2  500 

Notes  Payable 

$  5  000 

Inventory- 

650 

Accounts  Payable 

2  800 

Accounts  Receivable 

3  520 

Capital  Stock 

50  000 

Notes  Receivable 

2  100 

Surplus 

37  829 

Material  and  Tools 

1  859 

Plant,     Machinery 

and 

Franchises 

85  000 

$95  629 


$95  629 


Required: 

(a)  Journal  entries  to  open  books  of  the  United  Gas  Cor- 
poration 

(b)  Journal  entries  to  close  the  books  of  the  Newtown  Gas 
Company. 


294  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  107 

The  Burn  well  Gas  Company  was  incorporated  on  January  1, 
1920,  with  an  authorized  capital  of  $300,000  (2/3  Preferred 
Stock  and  1/3  Common,  all  the  shares  being  of  the  par  value  of 
$100)  to  acquire  and  conduct  the  business  of  the  Safety  Gas 
Company,  whose  general  balance  sheet  shows  the  following  on 
December  31,  1919: 

Assets 

Buildings,  Machinery  and  Equipment 

Mains,  Conduits,  Meters,  and  Connections 

Franchises,  Rights,  Privileges,  etc. 

Materials  and  Supplies 

Tools  and  Emergency  Equipment 

Cash 

Accounts  Receivable 


Liabilities 


$100 

000 

70 

000 

60 

000 

15 

000 

10 

000 

11 

800 

35 

200 

$292  000 

$  10 

000 

52 

000 

200 

000 

30 

000 

$292  000 

Notes  Payable 

Accounts  Payable 

Capital  Stock  (2,000  shares) 

Surplus 


On  January  15,  1920,  all  the  Preferred  Stock  and  Common 
Stock  of  the  Burnwell  Gas  Company  was  issued  to  the  twenty 
stockholders  of  the  Safety  Gas  Company,  in  exchange  for  their 
holdings  of  stock  in  the  latter  company,  in  the  proportion  of 
two  shares  of  Preferred  and  one  share  of  Common  for  each  two 
shares  of  stock  exchanged. 

At  a  meeting  of  the  board  of  directors  of  the  Safety  Gas 
Company  held  January  20,  1920,  it  was  resolved  to  carry  out 
the  provisions  of  a  plan  or  merger  in  accordance  with  which  the 
Safety  Gas  Company  was  to  transfer  its  assets  and  liabilities  to 
the  Burnwell  Gas  Company  and  surrender  its  charter.  A  cer- 
tificate of  merger  was  issued  at  the  close  of  the  meeting. 

At  a  meeting  held  January  31,  1920,  the  board  of  directors  of 
the  Burnwell  Gas  Company  resolved  to  open  accounts  on  the 
general  books  of  the  company  with  the  individual  assets  and 
liabilities  taken  over  and  assumed,  at  the  figures  shown  by  the 
balance  sheet  of  the  Safety  Gas  Company  on  December  31, 


CLASSIFIED  PROBLEMS  AND   EXERCISES  295 

1919,  with  the  following  exceptions:  (a)  franchise,  etc.,  to  be 
raised  to  $70,000;  (b)  surplus  not  to  be  carried. 

As  to  the  January  operating  transactions,  they  were  recorded 
in  special  books  in  order  that  they  might  be  embodied  at  the 
proper  time  in  the  books  of  the  Burnwell  Gas  Company. 

Required: 

(a)  Chronological  journal  entries  reflecting  on  the  books 
of  the  Burnwell  Gas  Company  the  different  stages  of 
the  merger. 

(b)  Journal  entries  closing  the  books  of  the  Safety  Gas 
Company. 

{Adapted  from  New  York  C.  P.  A.  Examination) 

Comments. — This  problem  illustrates  one  of  the  methods  of  merging 
corporations.  Make  opening  entry  for  the  new  company  in  the  usual 
form.  Bring  on  the  assets  and  liabihties  of  the  Safety  Gas  Company, 
opening  up  a  Vendee  account.  The  method  of  closing  Safety  Gas  Com- 
pany's books  will  be  as  outlined  for  previous  problems. 


296 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Group  H — Holding  Companies  and  Consolidated  Balance  Sheets 


Problem  108 

The  Armstrong  Manufacturing  Company  has  been  engaged  in 
the  manufacture  of  a  certain  commodity  for  a  number  of  years. 
In  order  to  insure  a  ready  market  for  their  output,  a  separate 
company  is  organized  which  is  to  market  the  product  of  the 
Armstrong  Company.  The  new  company  is  to  be  known  as  the 
Smith  Trading  Company. 

The  Smith  Trading  Company  is  incorporated  for  $100,000,  of 
which  $90,000  is  subscribed  for  by  the  Armstrong  Company, 
and  the  balance  sold  to  outsiders  for  cash.  The  product  is 
billed  to  the  Trading  Company  at  cost  to  the  Manufacturing 
Company. 

On  December  31,  1921,  the  Armstrong  Manufacturing  Com- 
pany balance  sheet  is  as  follows: 


THE  ARMSTRONG  MANUFACTURING  COMPANY 


Balance  Sheet- 

-December  31,  1921 

Assets 

Liabilities 

Land 

%  30  000 

Accounts  Payable 

$  35  000 

Buildings 

130  000 

Capital  Stock 

300  000 

Equipment 

20  000 

Surplus 

65  000 

Raw  Materials 

40  000 

Finished  Goods 

45  000 

Cash 

15  000 

Due  from  Smith  Trad- 

ing Company 

30  000 

Investment     in     Smith 

Trading  Co.  Stock 

90  000 
$400  000 

$400  000 

CLASSIFIED   PROBLEMS  AND   EXERCISES 


297 


The  Smith  Traaing  Company  submitted  a  balance  sheet  as 
of  the  same  date  as  follows: 


THE    SMITH    TRADING    COMPANY 


Balance  Sheet — December  31,  1921 


Assets 


Land 

$  20  000 

Buildings 

50  000 

Equipment 

10  000 

Inventory  of  Goods 

20  000 

Accounts  Receivable 

25  000 

Cash 

10  000 

$135  000 

Liabilities 

Accounts  Payable  $     5  000 

Due    Armstrong    Com- 
pany 30  000 
Capital  Stock                        100  000 


$135  000 


Required: 

Prepare  a  consolidated  balance  sheet  showing  the  condition 
of  the  two  companies  as  a  single  organization,  and  showing 
only  the  status  of  the  organization  with  reference  to  the 
outside  public. 

Comments, — In  preparing  a  consolidated  balance  sheet  it  is  important 
to  bear  in  mind  that  all  inter-company  accounts  are  eliminated  in  order 
that  the  financial  condition  of  the  enterprise  as  a  whole  may  be  shown 
only  in  its  relation  to  the  outside  world. 

In  solving  this  problem,  therefore,  attention  is  called  to  the  following: 

(1)  The  amount  due  the  Armstrong  Company  from  the  Smith  Company 
is  eliminated  because  it  represents  an  intercompany  debt,  and  does  not 
affect  the  financial  condition  of  the  company  as  it  concerns  outsiders.  The 
amount  due  Armstrong  Company  is  directly  offset  by  the  liability  as  shown 
on  Smith  Trading  Company's  books. 

(2)  The  investment  of  the  Armstrong  Company  in  the  stock  of  the 
Smith  Company  is  eliminated  because  it  represents  the  value  of  the  net 
assets  of  the  Smith  Company,  which  assets  are  shown  in  detail  in  the 
consolidated  balance  sheet.  If  the  stock  investment  account  were  in- 
cluded in  the  consolidated  balance  sheet  it,  would  have  the  effect  of  stating 
twice  the  value  of  the  assets  held  by  the  holding  company. 

The  amount  of  the  capital  stock  of  the  Smith  Company  owned  by  the 
Armstrong  Company  is  eliminated.  Capital  Stock  represents  an  owner- 
ship interest  in  the  net  assets.  As  the  investment  account  is  eliminated 
from  the  Armstrong  Company  assets  a  corresponding  portion  of  the  Smith 
Company  Capital  Stock  is  also  eliminated.  The  balance  of  the  stock 
being  held  by  outsiders  is  known  as  the  minority  interest  and  is  shown 
separately  on  the  consolidated  balance  sheet. 


298  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

SOLUTION 

CONSOLIDATED    WORKING    PAPERS 

December  31,  1921 


g. r-;-jT¥rT.g;.»Mi-,    .1   1  in.-iri.ggTiM      ■<    iiii.L  = 

Armstrong 

Smith 

Inter  Co. 

Consoli- 

Assets 

Manuf't'g 

Trading 

Elimina- 

dated 

Company 

Company 

tions 

Figures 

Land 

$  30  000  00 

S  20  000  00 

$  50  000  00 

Buildings 

130  000  00 

50  000  00 

180  000  00 

Equipment 

20  000  00 

10  000  00 

30  000  00 

Raw  Materials 

40  000  00 

40  000  00 

Finished  Goods 

45  000  00 

20  000  00 

65  000  00 

Due  from  Smith  Com- 

pany 

30  000  00 

$  30  000  00 

Accounts  Receivable 

25  000  00 

25  000  00 

Investment    in    Smith 

Company    Stock    at 

par 

90  000  00 

90  000  00 

Cash 

15  000  00 

10  000  00 

25  000  00 

$400  000  00 

$135  000  00 

$120  000  00 

$415  000  00 

Liabilities 

Accounts  Payable 

$  35  000  00 

$     5  000  00 

$  40  000  00 

Due  Armstrong  Com- 

pany 

30  000  00 

$  30  000  GO 

Capital  Stock: 

Arrnstrong  Company 

300  000  00 

300  000  00 

Smith  Company 

100  000  GO 

90  000  00 

10  000  00 

Surplus 

G5  000  00 

65  000  00 

$400  000  00 

$135  000  00 

$120  000  00 

$415  000  00 

CLASSIFIED   PROBLEMS   AND   EXERCISES  299 

THE    ARMSTRO^^G     MANUFACTURING     COMPANY    and    THE 
SMITH  TRADING  COMPANY 

Consolidated  Balance  Sheet — December  30,  1921 

Assets 

Current  Assets: 

Cash  $  25  000  00 

Accounts  Receivable  25  000  00 

Finished  Goods  65  000  00 

Raw  Materials  40  OOP  00     $155  000  00 

Fixed  Assets; 

Land  $  50  000  00 

Buildings  180  000  00 

Equipment  30  000  00       260  OOP  00 

Total  Assets  $415  OOP  OP 

Liabilities  and  Capital 

Current  Liabilities: 

Accounts  Payable  $  4P  000  OP 

Capital  Stock: 

Armstrong  Company  $300  000  00 

Minority  Interest  in  Smith  Trading  Com- 
pany 10  000  00       310  000  OP 

Surplus  65  000  00 

Total  Liabilities  and  Capital  $415  000  OP 


300  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  109 

A  is  an  operating  company  and  B  is  a  holding  company.  The 
following  statements  are  taken  from  the  books  of  the  respective 
companies,  viz.: 

A  COMPANY 

Assets: 

Cash  on  Hand  %  35  000  00 

Book  Accounts  Receivable  25  000  00 

Stock  Inventory  21  000  00 

$       81  000  00 

Prepaid  Accounts  7  000  00 

Sinking  Fund  Trustee  15  000  00 

Premiums  on  Sinking  Fund  Bonds  700  00 

B  Company  Advances  45  000  00 

Investments,  B  Company  Stock  25  000  00 

Other  Investments  5  000  00 

Plant,  Franchises,  etc.  1  400  000  00 

$1  578  700  00 

Liabilities: 

Book  Accounts  Payable  $  12  000  00 

Wages  8  000  00 

Bills  Payable  50  000  00 

Accrued  Accounts  12  OOP  00 

$  82  000  00 

Reserve  Accounts  65  000  00 

Bonds  750  000  00 

Capital  Stock  500  000  00 

Surplus  181  700  00 

B  COMPANY 

Assets: 

Cash  on  Hand  $  14  000  00 

Accounts  Receivable  G  000  00 

$       20  000  00 

Investments: 

A  (Company's  Stock  $500  000  00 

Other  Investments  500  OOP  00 

1  000  000  00 

Plant,  Franchises,  etc.                                                                      1  250  000  00 

Deficit  22  000  00 

$2  292  000  00 


578  700  00 


CLASSIFIED  PROBLEMS  AND  EXERCISES 


301 


Liabilities:  • 

Book  Accounts  Payable 
Bills  Payable 
Accrued  Accounts 

Due  A  Company 
Bonds  Issued 
Capital  Stock  Issued 


$     7  000  00 

130  000  00 

10  000  00 


$     147  000  00 

45  000  00 

1   100  000  00 

1  000  000  00 

$2  292  000  00 


Required: 

A  balance  sheet  combining  the  assets  and  liabilities  of  the  two 
companies.     (Submit  your  working  papers  with  your  solution.) 

{From  Pennsylvania  C.  P.  A.  Examination) 

Comments. — The  stock  of  each  company  held  by  the  other  is  eliminated 
from  the  assets  and  from  the  combined  capital  stock,  the  assets  received 
by  the  companies  for  this  stock  showing  elsewhere  on  the  balance  sheet. 

The  advances  by  A  Company  to  B  Company  are  offset  by  the  amount 
due  A  Company  appearing  as  a  liability  on  B  Company's  balance  sheet. 
These  items  are  therefore  eliminated. 


Problem  110 

A  holding  company,  X,  owns  all  of  the  capital  stock  of  sub- 
sidiary companies  Y  and  Z,  The  balance  sheets  of  the  various 
companies  are  as  follows: 

X  COMPANY 
Balance  Sheet— June  30,  1921 


Assets 


Liabilities 


Cash 

Notes  Receivable 

Due    from    Y    Com- 
pany 

Inventory 

Prepaid  Expense 

Investment  in  Y  and 
Z  Companies' 
Stock  (par) 

Plant 


15  000  00 
12  000  00 

25  000  00 

4  000  00 

250  00 


55  000  00 

50  OOP  00 

$151   250  00 


Accounts  Payable 
Notes  Payable 
Capital  Stock 
Surplus 


i    1  000  00 

35  000  00 

100  000  00 

15  250  00 


$151  250  00 


302  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Y  COMPANY 


Balance  Sheet- 

-June  30,  1921 

Assets 

Liabilities 

Cash 

$  4  000  00 

Accounts  Payable 

$12  900  00 

Accounts  Receivable 

10  000  00 

Notes  Payable* 

10 

000  00 

Notes  Receivable 

1  000  00 

Due  X  and  Z  Com- 

Inventory 

8  000  00 

panies 

30 

000  00 

Prepaid  Expenses 

500  00 

Capital  Stock 

25 

000  00 

Plant 

55  000  00 

$78  500  00 

Surplus 
Company  to  X  Company 

1 

500  00 

$78 

500  00 

*  Includes  $2,000  note  owing  by  Y 

Z  COMPANY 

Balance  Sheet- 

-June  30,  1921 

Assets 

Liabilities 

Cash 

$  2  000  00 

Notes  Payable 

$15  000  00 

Notes  Receivable 

1  000  00 

Accounts  Payable 

4 

000  00 

Accounts  Receivable 

3  500  00 

Capital  Stock 

30 

000  00 

Due    from    Y    Com- 

Surplus 

2 

200  00 

pany 

5  000  00 

Inventory 

5  000  00 

Prepaid  Expense 

200  00 

Plant 

34  500  00 
$51  200  00 

$51 

200  00 

Required: 

Prepare  consolidated  balance  sheet. 


(Submit  working  sheet.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES 


303 


•  Problem  111 

The  Copley  Manufacturing  Company  has  owned  the  control- 
ling interest  in  The  H.  E.  Smith  Company  and  The  Clifford 
Company  since  the  subsidiaries  were  organized.  From  the  bal- 
ance sheets  of  the  respective  companies  given  below,  prepare  a 
consolidated  balance  sheet.  Attach  thereto  your  working  papers 
showing  how  the  consolidated  balance  sheet  figures  were  arrived 
at. 

THE  H.  E.  SMITH  COMPANY 
Balance  Sheet — December  31,  1920 


Assets 

$  50  000 

Liabilities 

Plant  and  Equipment 

Capital  Stock 

$  75  000 

Inventories 

30  000 

Accounts  Payable 

27  000 

Advance  to  The  Clifford 

Notes  Payable — Coplej^ 

Company- 

3  500 

Mfg.  Co. 

8  500 

Customers 

26  000 

Dividends  Payable 

3  000 

Cash 

5  000 

$113  500 


$113  500 


THE  CLIFFORD  COMPANY 
Balance  Sheet — December  31,  1920 


Assets 

Liabilities 

Plant  and  Equipment 

$  97  500 

Capital  Stock 

$125  000 

Inventories 

47  400 

Accounts  Payable 

46  500 

Customers 

25  000 

Advances  from  The  H. 

Advances  to  Copley 

E.  Smith  Co. 

3  500 

Mfg.  Co. 

7  500 

Surplus 

6  250 

Cash 

3  850 

$181  250 


$181  250 


304  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

COPLEY  MANUFACTURING  COMPANY 
Balance  Sheet— December  31,  1920 


Assets 


Investment  in  the  Capi- 

tal Stock  of  the  H.  E. 

Smith  Co.,  750  shares  $100  000 

Investment  in  the  Capi- 

tal Stock  of  The  Clif- 

ford Company,  1,000 

shares 

90  000 

Notes  Receivable  of  The 

Smith  Company- 

8  500 

Dividends  Receivable 

3  000 

Cash 

59  000 

$260  500 

Liabilities 

Capital  Stock  $250  000 

Advances  from  The  Clif- 
ford Company  7  500 
Surplus                                    3  000 


$260  500 


Par  value  per  share 
of  all  companies 


$100.00. 


Required: 

Consolidated  balance  sheet  and  working  papers. 

Comments. — Prepare  consolidated  working  papers  in  the  usual  form.  In 
ehminating  the  Investment  in  the  Capital  Stock  of  the  H.  E.  Smith  Com- 
pany, it  should  be  noted  that  the  entire  issue  or  750  shares,  with  par  value 
of  $75,000,  was  purchased  for  $100,000.  The  excess  of  purchase  price  over 
the  net  assets  as  represented  by  Capital  Stock  will  be  shown  on  consolidated 
balance  sheet  as  good-will. 

It  should  be  noted  also  that  a  minority  interest  exists  in  The  Clifford 
Company  since  the  holding  company  owns  but  1,000  of  the  1,250  shares 
outstanding.  As  the  holding  company  has  owned  the  controlling  interest 
since  The  Clifford  Company  was  organized,  it  may  be  assumed  that  the 
surplus  has  been  earned  since  The  Copley  Company  secured  control,  and 
was  not  purchased  by  them.  Therefore,  the  minority  stockholders  have 
an  equity  in  the  surplus.  Attention  is  also  called  to  the'fact  that  the  1,000 
shares  were  purchased  for  $90,000,  or  at  less  than  par.  The  difference 
may  be  eliminated  from  good-will. 


CLASSIFIED  PROBLEMS  AND   EXERCISES 


305 


Problem  112 

« 

The  stockholders  of  corporations  A,  B,  and  C  desire  to  merge 
same  into  a  new  corporation,  the  capital  of  which  shall  be  the 
amount  of  the  net  worth  of  the  consolidated  corporations.  Pre- 
pare a  consolidated  balance  sheet  showing  the  combined  net 
worth  of  the  three  corporations. 

The  final  and  audited  balance  sheets  are  here  given: 

CORPORATION     A 


Assets 

Cash  $     5  000  00 

Due  by  Corporation 

B  20  000  00 

Due  Corporation  by 

C  5  000  00 

Inventories  at  cost 
or  market,  which- 
ever is  lower  130  000  00 

Plant  50  000  00 

Stock  in  Corporation 

B  100  000  00 

Bonds  in  Corpora- 
tion    B  40  000  00 

Bonds    in    Corpora- 
tion    C  50  OOP  00 
$400  000  00 


Liabilities 

Accounts  Payable       $ 
Notes  Payable 
Due   C    Corporation 
Bonds  Outstanding 
Reserve  for  Losses 
Capital  Stock 
Surplus 


!     5  000  00 

20  000  00 

10  000  00 

100  000  00 

5  000  00 

100  000  00 

160  000  00 


$400  000  00 


CORPORATION  B 


Assets 

Cash 

Accounts  and  Notes, 
Miscellaneous 

Due  by  C  Corpo- 
ration 

Inventories  at  cost 
or  market,  which- 
ever is  lower 

Plant  Account 

Bonds  of  A  Corpo- 
ration 

Treasury  Bonds 


$     8  000  00 

55  000  00 

5  000  00 


50  000  00 
60  000  00 

50  000  00 
10  000  00 


Liabilities 

Accounts  and  Notes, 

Miscellaneous 
Due  A  Corporation 
Bonds  Outstanding 
Capital  Stock 
Surplus 


$20  000  00 
20  000  00 
50  000  00 

100  000  00 
48  000  00 


$238  000  00 


$238  000  00 


306 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


CORPORATION  C 


Assets 


Cash 

Due  by  Corporation 
A 

Accounts  and  Notes 
Receivable,  Mis- 
cellaneous 

Inventories  at  cost 
or  market,  which- 
ever is  lower 

Plant  Account 


$215  000  00 


10  000  00 


56  000  00 


50  000  00 

100  000  00 

$431  000  00 


Liabilities 


Accounts  and  Notes 

Payable 
Due  Corporation  A 
Bonds  Outstanding 
Reserve  for  Losses 
Due  to  B  Corpora- 
tion 
Capital  Stock 
Surplus 


$  35  000  00 

5  000  00 

50  000  00 

2  000  00 

5  000  00 
100  000  00 
234  000  00 

$431  000  00 


Required: 

(a)  Consolidated  working  papers 

(b)  Consolidated  balance  sheet  with  assets  and  liabilities 
properly  classified. 

{From  North  Carolina  C.  P.  A.  Examination) 


Problem  113 

Company  A  purchased  on  January  1,  1917,  the  entire  capital 
stock  of  Company  B  at  $175  per  share,  and  the  entire  stock  of 
Company  C  at  $80  per  share. 

You  are  handed  the  balance  sheet  as  understated  at  June  30, 
1917,  and  are  requested  to  prepare  a  consolidated  balance  sheet 
of  the  A  Company  and  its  subsidiary  companies  at  that  date. 

There  are  no  intercompany  accounts  or  inventories. 


Balance  Sheet- 

-Company  A 

$2 

Property   and    Good- 

Capital  Stock 

250  000 

Will                             $     850  000 

Current  Liabilities 

150  000 

Stock    of    Subsidiary 

Surplus,  January  1 

525  000 

Companies                    1  500  000 

Undivided    Profit  for 

Current  Assets                     700  000 

one-half  year 

125  000 

$3  050  000 

|3 

050  000 

CLASSIFIED   PROBLEMS  AND   EXERCISES 


307 


Balance  Sheet — Company  B 


Property    and   Good- 

Capital  Stock 

$ 

400  000 

Will 

$     650  000 

Current  Liabilities 

10  000 

Current  Assets 

60  000 

Surplus,  January  1 
Undivided  Profit   for 

200  000 

one-half  year 
-Company  C 

S~ 

100  000 

$     710  000 
Balance  Sheet- 

710  000 

$1 

Property    (as   ap- 

Capital Stock 

000  000 

praised  January   1, 

Current  Liabilities 

240  000 

1917) 

Si  130  000 

Surplus,  January  1 

30  000 

Current  Assets 

180  000 

Undivided  Profit   for 

one-half  year 

U. 

40  000 

$1  310  000 

310  000 

Required: 

Consolidated  Balance  Sheet  of  A  Company  and  its  subsidiary- 
companies  as  of  June  30,  1917,  together  with  working  papers. 

(From  American  Institute  Examination) 

Comments. — The  Surplus  of  subsidiaries  on  January  1  represents  part 
of  the  book  value  of  the  stock  purchased  on  that  date.  The  undivided 
profits  for  one-half  year  are  added  to  A  Company  surplus. 

The  purchase  price  of  B  Company  stock  is  $700,000  of  which  $400,000 
represents  par  value,  $200,000  surplus  at  date  of  purchase,  and  the  balance, 
$100,000,  good- will.  When  the  purchase  price  of  stock  in  a  subsidiary  ex- 
ceeds the  book  value  of  the  stock  purchased  (as  indicated  by  the  capital 
stock  and  surplus  showTi  on  the  subsidiary's  books  at  time  of  purchase) 
the  excess  is  sho\\Ti  on  the  consolidated  balance  sheet  as  an  addition  to 
Good-Will. 

The  purchase  price  of  C  Company  Stock  is  $800,000.  The  par  value  of 
this  stock  is  $1,000,000,  the  surplus  at  date  of  purchase  $30,000,  making 
the  book  value  of  the  stock  $1,030,000.  The  excess  of  the  book  value  over 
the  purchase  price,  therefore,  amounts  to  $230,000,  which  may  be  added 
to  Surplus  or  deducted  from  Good-Will.  The  latter  treatment  is  more 
conservative  and  will  be  followed  in  this  problem. 

Property  and  good-will  are  merged  in  this  problem  so  that  the  amount 
of  the  original  good-will  is  unknown.  For  the  purpose  of  the  problem  it 
may  be  assumed  that  there  is  sufficient  good-will  to  justify  the  deduction 
of  the  $23,000  from  the  Property  and  Good-Will  item. 

Working  papers  will  be  set  up  in  accordance  with  the  above  suggestions. 


308  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  114 

The  balance  sheet  of  the  American  Pin  Company  on  June  30, 
1920,  was  as  follows: 

THE  AMERICAN  PIN  COMPANY 


Balance  Sheet- 

-June  30,  1920 

3 

Assets 

Liabilitiei 

Land,  Buildings,  and 

First  Mortgage  6% 

Equipment 

$335  000  00 

Gold  Bonds 

$100  000  00 

Bronx  Pin  Ticket  Co. 

Taxes  Accrued 

3 

250  00 

Stock    (par   value 

Salaries  and  Wages 

$50,000) 

57  400  00 

Accrued 

4 

327  82 

Patents 

15  000  00 

Accounts  Payable 

123 

749  83 

Working  and  Trad- 

Notes   Payable   and 

ing  Assets 

37  500  00 

Interest 

80 

125  00 

Cash 

10  000  00 

Interest  Accrued  on 

Accounts  Receivable 

32  000  00 

Bonds  Payable 

2 

500  00 

Due  from  Bronx  Pin 

Reserve  for  Depreci- 

Ticket Company 

375  82 

ation  of  Building 

35 

000  00 

Prepaid  Expenses 

1  500  00 

Capital  Stock — Pre- 

ferred 

75 

000  00 

Capital  Stock  — 

Common 

50 

000  00 

Profit  and  Loss  Sur- 

plus 

14 

$488 

823  17 

$488  775  82 

775  82 

The  American  Pin  Company  having  acquired  all  the  capital 
stock  of  the  Bronx  Pin  Ticket  Company,  the  balance  sheet  of 
which  appears  below,  it  is  proposed  to  merge  the  two  companies 
as  of  July  1,  1920. 

THE  BRONX  PIN  TICKET  COMPANY 


Assets 

Land,  Buildings,  and 
Equipment 

Blauser  Pin  Tray  Co. 
Stock 

Patents 

Working  and  Trad- 
ing Assets 

Cash 


Balance  Sheet— June  30,  1920 

Liabilities 

First  Mortgage  5% 
$260  000  00  Gold  Bonds  $  50  000  00 

Taxes  Accrued  2  750  00 

35  000  00  Salaries  and  Wages 

22  625  00  Accrued  3  147  83 

Accounts  Payable  144  720  30 

10  000  00  Due    American    Pin 

10  365  27  Company  375  82 


CLASSIFIED   PROBLEMS  AND  EXERCISES 


309 


Accounts  Receivable 
Sinking  Fund 
Prepaid  Expenses 


537  943  86 
3  236  92 
1  200  00 


$380  371  05 


Notes  Payable  and 
Interest 

Interest  Accrued  on 
Bonds  Payable 

Reserve  for  Depreci- 
ation of  Plant 

Capital  Stock 

Profit  and  Loss  Sur- 
plus 


$31  372  53 

1  250  00 

27  500  00 
50  000  00 

69  254  57 
371  05 


{Adapted  from  American  Institute  Examination) 
Required: 

(a)  Entries  on  the  books  of  the  American  Pin  Company  in 
general  journal  form 

(b)  Entries  on  the  books  of  the  Bronx  Pin  Ticket  Company 
in  general  journal  form 

(c)  Balance  sheet  of  the  American  Pin  Ticket  Company 
after  merger. 

Comments. — This  problem  illustrates  the  merger  of  a  holding  company 
and  its  subsidiary.  The  holding  company  having  acquired  all  the  stock  of 
the  subsidiary,  the  accounts  of  the  latter  will  be  taken  onto  the  books  of 
the  holding  company  (The  American  Pin  Company);  all  inter-company 
accounts  eliminated;  and  the  books  of  the  subsidiary  (The  Bronx  Pin  Ticket 
Company)  closed. 

The  American  Pin  Company's  entries  would  be  as  follows: 

(1)  Charge  each  asset  account  taken  over,  and  credit  Bronx  Pin  Ticket 
Company  (open  account)  for  the  total. 

(2)  Charge  Bronx  Pin  Ticket  Company  for  total  of  liabilities  assumed 
and  credit  each  liability  account. 

(3)  Charge  Bronx  Pin  Ticket  Company  for  balance  of  that  account  and 
credit  Bronx  Pin  Ticket  Company  Stock  account  for  enough  to  balance  that 
account,  and  credit  the  balance  to  Surplus.  It  is  to  be  noted  that  the  net 
assets  of  the  Bronx  Pin  Ticket  Company  as  represented  by  its  Capital 
Stock  and  Surplus  amount  to  $119,254.57,  while  in  the  investment  account 
on  the  books  of  The  American  Pin  Company  this  is  carried  at  $57,400. 
The  difference  represents  the  excess  of  book  value  of  net  assets  acquired 
over  that  at  which  they  are  carried  in  the  investment  account.  When  the 
assets  take  the  place  of  the  investment  account,  the  result  is  an  increase 
in  the  Surplus  of  the  American  Pin  Company,  hence  the  above  entry. 

The  entries  to  close  Bronx  Pin  Ticket  Company  books  would  be  as  usual 
except  assets  are  charged  to  American  Pin  Company  to  open  account  instead 
of  a  Vendee  account.  The  liabilities  will  be  credited  to  same  account  and 
the  balance  closed  to  Capital  Stock  and  Surplus  which  closes  all  accounts. 


310  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  I — Holding  Companies  and  Consolidations — Theory 
Questions 

T-73 

What  are  the  three  leading  types  of  corporation  consoUdation? 
Discuss  in  detail  the  advantages  and  disadvantages  of  each  form 
from  the  standpoint  of  the  corporation. 

{Pennsylvania  C.  P.  A.) 


T-74 

In  the  case  of  a  consolidation  of  three  manufacturing  concerns, 
how  would  you  determine  the  good-will  of  the  consolidated 
company? 

(Illinois  C.  P.  A.) 


T-75 

In  making  an  examination  for  an  intended  purchaser  of  a 
business,  what  are  the  principal  matters  that  should  be  looked 
into? 

(Maine  C.  P.  A.) 


T-76 

In  the  case  of  a  merger  or  consolidation  of  several  companies 
it  becomes  necessary  to  equalize  certain  conditions.  Name  some 
items  of  this  kind  that  would  need  attention. 


T-77 

Explain  in  what  respect  the  balance  sheet  of  a  holding  com- 
pany fails  to  give  satisfactory  information  in  regard  to  the 
actual  financial  condition  of  the  corporation. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  311 

T-78 

State  at  least  four  different  methods  of  showing  to  the  stock- 
holders the  financial  condition  of  a  holding  company  and  the 
subsidiaries. 

(Wisconsin  C.  P.  A.) 


T-79 

If  in  consolidating  the  accounts  of  a  holding  company  and  its 
subsidiary  companies  you  find  that  in  the  case  of  the  subsidiary 
companies  the  holding  company  owns  only  60%  of  its  voting 
stock,  state  briefly  how  you  would  treat  the  subsidiary  company's 
accounts  in  the  consolidated  balance  sheet  and  why  your  pro- 
posed treatment  reflects  the  true  financial  position  of  the  com- 
bined companies  more  clearly  than  other  methods  with  which 
you  are  familiar. 

(American  Institute) 


T-80 

Four  corporations  which  have  been  doing  business  with  each 
other  consolidated.  In  each  set  of  books  accounts  are  open 
with  the  other  three.  How  will  these  be  treated  in  the  consoli- 
dated balance  sheet? 

(Michigan  C.  P.  A.) 


T-81 

In  making  up  a  consolidated  balance  sheet  of  a  holding  or 
parent  company  and  two  subsidiary  companies  where,  in  the 
case  of  one  of  the  subsidiary  companies,  its  entire  capital  stock 
has  been  acquired  at  less  than  par,  and  in  the  case  of  the  other, 
at  a  substantial  premium,  how  would  you  deal  with  such  dis- 
count and  premium,  respectively,  in  the  consolidated  balance 
sheet?     In  the  event  that  all  the  stock  of  the  subsidiary  com- 


312  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

panies  was  not  owned  by  the  parent  company,  how  should  such 
proportion  of  said  stock  belonging  to  the  minority  stockholders, 
together  with  the  proportion  of  surplus  appertaining  thereto,  be 
stated  in  the  balance  sheet? 

{Maryland  C.  P.  A.) 


T-82 

At  the  close  of  a  fiscal  period  you  find  the  inventories  of  a 
subsidiary  company  contains  merchandise,  transferred  from 
another  subsidiary  company  at  a  price  above  the  cost  to  manu- 
facture. How  would  you  treat  such  inventories  in  making  the 
balance  sheet  of  the  holding  company?  If  included  at  the 
prices  shown  on  the  books  of  the  subsidiary  company,  how  would 
you  treat  the  apparent  profit? 

(North  Carolina  C.  P.  A.) 


T-83 

A  paint  company  holding  notes  receivable  from  a  subsidiary 
company  to  the  extent  of  $100,000  indorses  and  discounts  said 
notes  with  its  banks,  thus  creating  a  contingent  liability.  In 
preparing  a  consolidated  balance  sheet  of  the  two  companies, 
state  if,  where,  and  how  the  liability  would  appear. 

(Illinois  C.  P.  A.) 


T-84 

Corporation  A,  which  owns  all  of  the  capital  stock  of  Cor- 
poration B,  purchases  stock  in  Corporation  C,  and  sells  to 
subsidiary  Corporation  B  at  a  profit  of  $50,000. 

How  would  this  transaction  affect  the  balance  sheet  of  Cor- 
poration A? 

(North  Carolina  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND   EXERCISES  313 

T-85 

Holding  company  A  owns  80  per  cent  of  the  stock  of  company 
B.  Company  B  loses  $50,000  in  a  year's  operation.  Holding 
company  A  loans  company  B  $50,000  and  takes  its  notes  for 
the  amount.  How  would  the  whole  transaction  appear  in  hold- 
ing company  A's  books  and  in  its  balance  sheet  and  profit  and 
loss  statements?     Give  reasons  for  your  answer. 

{North  Carolina  C.  P.  A.) 


T-86 

In  the  process  of  consolidating  several  competing  establish- 
ments. Corporation  A,  the  holding  company,  acquires  $98,000, 
out  of  a  total  of  $100,000,  of  the  capital  stock  of  Company  B. 
At  the  time  of  the  purchase,  the  balance  sheet  of  Company  B 
showed  surplus  and  undivided  profits  of  $50,000.  Company  A 
bought  the  stock  of  B  at  200%.  Almost  immediately  after  the 
purchase  Company  B  paid  a  cash  dividend  of  25%.  In  what 
ways  would  the  payment  of  this  dividend  affect  (a)  the  balance 
sheet  of  B;  (b)  the  balance  sheet  of  A;  (c)  the  consoUdated  bal- 
ance sheet  of  A  and  its  subsidiary  companies?  Give  your  rea- 
sons for  your  answer. 

{American  Institute) 


314  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  J — Bonds  and  Sinking  Funds 
Problem  115 

The  Yardley  Textile  Company  on  September  1,  1921,  issued 
$500,000  First  Mortgage  6%  Sinking  Fund  Coupon  Bonds, 
interest  payable  semi-annually.  The  deed  of  trust  provides 
that  $30,000  shall  be  taken  from  profits  on  September  1,  1923, 
and  each  year  thereafter,  for  the  purpose  of  providing  a  sinking 
fund.  This  money  shall  be  turned  over  to  sinking  fund  trustees 
who  shall  purchase  outstanding  bonds  of  the  company  at  105. 
The  bonds  purchased  are  to  be  carried  as  live  bonds  and  interest 
on  same  added  to  the  fund.  The  entire  bond  issue  was  sold  to 
a  syndicate  at  95.  The  bond  discount  is  to  be  written  off  over 
the  life  of  the  bonds. 

Required: 

Outline  in  journal  form  entries  on  the  corporate  books  to 
record  the  issue  and  sale  of  bonds,  payment  of  interest,  payment 
to  sinking  fund  trustees,  redemption  of  bond  by  trustee,  amorti- 
zation of  bond  discount,  etc.,  up  to  and  including  September  1, 
1924. 

Comments. — For  the  purpose  of  this  problem  it  may  be  assumed  that 
the  trustee  purchased  bonds  to  the  extent  of  his  funds  as  provided  by  the 
sinking  fund  installment. 


Problem  116 

The  Bucks  Public  Service  Corporation  issued  and  sold  to  a 
bond  house  at  92,  $100,000  General  Mortgage  5%  bonds,  dated 
January  1,  1922,  due  in  20  years,  interest  payable  semi-annually. 

The  deed  of  trust  provided  that  the  corporation  should  pay 
the  sum  of  $5,000  annually  from  earnings  to  sinking  fund  trus- 
tees, who  should  use  the  fund  accumulated,  beginning  two  years 
from  the  date  of  bond  issue,  for  the  purpose  of  redeeming  such 


CLASSIFIED   PROBLEMS   AND   EXERCISES  315 

bonds  as  may  be  available  at  not  more  than  103.     Such  bonds 
as  may  be  redeemed  by  the  trustees  are  to  be  cancelled. 

Required: 

(a)  Assuming  that  money  is  worth  G%,  how  many  bonds 
can  be  redeemed  January  1,  1924? 

(b)  Journal  entries  to  record  the  issue  of  bonds,  payment 
of  interest,  bond  discount  written  off,  provision  for  an- 
nual payment  of  sinking  fund  installments,  redemp- 
tion of  bonds  by  trustees  to  the  extent  of  funds  avail- 
able, etc.,  up  to  January  1,  1925. 


Problem  117 

You  are  called  upon  to  state  what  is  the  annual  sinking  fund 

necessary  to  redeem  a  principal  sum  of  $1,000,000  due  30  years 

hence,  assuming  that  the  annual  sums  set  aside  are  invested  at 

compound  interest  at  5%.     State  what  computation  you  would 

make  to  arrive  at  the  result  desired.     You  need  not  work  out 

the  computation. 

(From  American  Institute  E!xamination.) 


Problem  118 

A  company  is  under  obligation  to  pay  $10,000  to  sinking  fund 
trustees  "out  of  profits."     The  following  transactions  take  place: 

1917 

December  31:  $10,000  cash  paid  to  sinking  fund  trustees. 
1918 

January  5:  Trustees  invest  in  $10,000  of  the  5%  bonds  of  the  company 
at  98  and  interest  (from  January  1). 


316  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

July  1:  Coupons  on  the  above  bonds  collected. 
December  31:  $10,000  paid  to  sinking  fund  trustees. 
1919 

January  1:  Coupons  collected. 

2:  $11,000  bonds  bought  for  sinking  fund  at  95. 
July  1:  Coupons  collected. 

December  31:  Paid  $125  for  expenses  of  sinking  fund. 
31:  Paid  $10,000  to  sinking  fund  trustees. 
1920 
January  1:  Coupons  collected. 

10:  $10,000  bonds  bought  at  101  and  interest. 

Reqtiired : 

Journal  entries  on  the  company's  books  for  the  above  trans- 
actions. 

{From  American  Institute  Examination) 


Problem  119 

X.  Y.  Z.  Corporation  has  an  authorized  issue  of  $5,000,000 
First  Mortgage  5%  bonds,  in  $1,000  denominations;  $2,502,000 
of  these  are  in  the  hands  of  the  pubUc,  and  the  balance  in  escrow 
in  the  hands  of  trustees,  to  be  taken  down  only  to  take  up  the 
bonds  of  underlying  companies,  or  for  new  construction  up  to 
80%  of  the  expenditures;  but  the  net  earnings  above  operating 
expenses  and  taxes  for  the  previous  year  must  equal  at  least  one 
and  three-fourths  times  the  interest  on  all  outstanding  bonds 
including  those  to  be  taken  down.  The  net  earnings  for  a  cer- 
tain year  were  $273,990.44.  There  were  also  in  the  hands  of 
the  public  the  following  bonds  of  subsidiary  companies:  $106,000 
5's,  and  $295,500  4|'s.  The  expenditures  for  construction 
amounted  to  $300,000. 

Required. — State  how  many  bonds  can  be  taken  down  for  con- 
struction, showing  how  you  arrive  at  the  result. 

(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — This  problem  is  largely  one  of  mathematics  and  should  be 
closely  studied.     In  figuring  the  total  interest  on  bonds  now  outstanding, 


CLASSIFIED  PROBLEMS  AND  EXERCISES  317 

interest  on  bonds  of  subsidiary  companies  should  be  included.  This  is 
done  under  the  assumption  that  the  holding  company  guarantees  the  inter- 
est on  the  bonds  of  the  subsidiaries,  which  is  frequently  done. 

The  term  "taken  down"  used  in  connection  with  the  bonds  in  escrow 
means  that  the  bonds  are  to  be  turned  over  to  the  company  by  the  trustees 
and  sold  to  the  public,  the  proceeds  to  be  used  as  indicated. 


Problem  120 

Under  the  terms  of  the  mortgage,  securing  the  issue  of  bonds 
by  a  corporation,  there  is  a  sinking  fund  provision,  by  which  2 
per  cent  per  annum  must  be  turned  over  to  the  trustees,  who 
are  empowered  to  invest  the  cash  in  their  hands  in  purchasing 
these  bonds  whenever  they  can  be  obtained  at  par  or  below. 
During  the  year  under  review  they  have  bought  $50,000  at  90 
fiat  and  received  one-half  year's  interest  thereon  at  6%.  Show 
the  entries  on  the  company's  books.  Indicate  whether  its  profit 
and  loss  or  its  surplus  is  affected  by  the  discount  and  the  interest. 

(American  Institute) 


Problem  121 

A  corporation  issued  10-year  First  Mortgage  bonds  on  April  1, 
1914,  bearing  6%  interest,  payable  semi-annually  (April  and 
October).  The  bonds  provided  for  annual  contributions  to  a 
sinking  fund  trustee,  a  trust  company  that  allowed  2%  compound 
interest.  The  bonds  were  sold  at  a  premium  and  payment  was 
received  therefor  on  April  1,  1914.  Show  pro  forma  entries  as 
of  the  following  dates:  (a)  April  1,  1914;  (b)  October  1,  1914; 
(c)  April  1,  1915;  (d)  April  1,  1924. 

(Maryland  C.  P.  A.) 


318  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  122 

The  stockholders  of  a  corporation  authorize  an  issue  of 
$1,000,000  of  bonds;  S500,000  of  these  bonds,  duly  registered 
and  certified  by  the  trustee,  were  returned  to  the  corporation 
and  disposed  of  as  follows:  The  Corporation  sold  $100,000  for 
cash  at  99|,  $100,000  at  101,  pledged  $200,000  as  collateral 
security  for  the  payment  of  its  notes  and  retained  $100,000. 
How  should  this  issue  of  bonds  appear  on  the  balance  sheet  of 
the  corporation? 

(Maryland  C.  P.  A.) 

'ts  ■ 

Problem  123 

The  Fort  William  Manufacturing  Company  has  created  a 
first  and  second  issue  of  mortgage  bonds  which  have  been 
placed  through  a  syndicate.  The  first  mortgage  bonds  are  to 
run  20  years  and  were  sold  at  115.  The  second  mortgage  bonds 
are  to  run  40  years  and  were  sold  at  60.  State  how  the  same 
should  be  entered  on  the  books  of  the  company,  assuming  the 
total  par  value  of  the  first  mortgage  to  be  $5,000,000  and  the 
second  $2,500,000. 

(Maryland  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  319 

Group  K — Bonds  and  Bond  Sinking  Funds — Theory  Questions 

T-87 

Name  five  classes  of  bonds,  describing  briefly  each  class  with 
regard  to  issue,  purpose,  redemption,  etc. 

(Michigan  C.  P.  A.) 


T-88 

A  distinction  is  made  between  funded  debt  and  unfunded 
debt.  Please  define  and  compare,  discussing  the  advantages  and 
disadvantages,  if  any,  attaching  to  each. 

(American  Institute) 


T-89 

An  issue  of  mortgage  bonds  of  the  par  value  of  $100,000 
and  running  for  5  years  has  been  sold  at  90,  the  money  to  be 
used  in  the  erection  of  new  buildings.  How  should  the  trans- 
action be  recorded  and  why? 

{Michigan  C.  P.  A.) 


T-90 

(a)  What  factors  determine  the  interest  rate  of  bonds? 

(b)  What  is  meant  by  the  nominal  rate  of  interest?     The  ef- 
fective rate? 

(c)  How  may  the  effective  rate  of  interest  be  determined? 


.    T-91 

An  insurance  company  buys  $50,000  7%  10-year  bonds  at 
116  for  investment.  The  bonds  will  mature  at  the  expiration  of 
5  years.  How  should  this  purchase  be  entered  on  the  balance 
sheet?     What  should  be  done  with  the  premium? 

(Maine  C.  P.  A.) 


320  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-92 

A  corporation,  having  issued  first  mortgage  bonds  to  the 
amount  of  $50,000,  sets  aside  out  of  profits  $5,000  each  year 
and  pays  off  at  par  bonds  to  a  similar  amount. 

How  shall  these  items  appear  in  a  balance  sheet  at  the  end 

of  5  years? 

(Massachusetts  C.  P.  A.) 


T-93 

What  reason  can  you  give  for  the  creation  of  a  reserve  for  a 
sinking  fund  when  the  reserve  is  not  to  be  funded?     Explain 

fully. 

{New  York  C.  P.  A.) 


T-94 

(a)  Give  a  definition  of  a  sinking  fund  and  state  how  the 
term  is  used  generally  in  bond  recitals. 

(b)  Indicate  the  pro  forma  entries  for 

1.  The  creation  of  a  sinking  fund  reserve. 

2.  The  creation  of  a  sinking  fund. 

(c)  State  the  disposition  of  a  Reserve  for  Sinking  Fund  account 
which  is  no  longer  necessary. 

(d)  State  the  plan  most  frequently  approved  by  writers  on 
corporation  finance  as  being  the  most  satisfactory  for  accom- 
plishing the  purpose  for  which  a  sinking  fund  is  created. 

(Wisconsin  C.  P.  A.) 


T-95 


A  municipality  borrowed  $150,000  for  5  years  at  4%,  inter- 
est payable  annually.  To  meet  the  debt  when  it  became  due  a 
sinking  fund  was  created  by  depositing  at  5%  compound  inter- 
est an  equal  sum  at  the  expiration  of  each  of  the  5  years.  What 
was  the  annual  amount  deposited? 

(Michigan  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  321 

•  T-96 

A  company  under  its  articles  of  incorporation  is  required  to 
set  aside  a  certain  percentage  of  its  profits  at  the  close  of  each 
year  to  provide  a  sinking  fund  for  retiring  its  bonded  indebted- 
ness when  it  matures. 

(a)  Give  necessary  entries  to  be  made  in  the  books,  setting  up 
the  reserve  at  the  close  of  each  year. 

(b)  Give  entries  required  when  the  bonds  are  paid  off  at 
maturity. 

(c)  What  relation  has  the  sinking  fund  provision  to  deprecia- 
tion? 

(Masaachusetts  C.  P.  A.) 


T-97 

Explain  the  relationship  between  a  sinking  fund  and  an  allow- 
ance for  depreciation.  It  is  claimed  that  in  municipal  enter- 
prises the  requirement  that  rates  must  be  high  enough  to  provide 
both  for  a  sinking  fund  to  pay  off  the  bonds  and  also  for  a 
Reserve  for  Depreciation  with  which  to  replace  the  plant  results 
in  a  double  charge  to  consumers.     Criticize  or  explain  this  theory. 

{American  Institute) 


T-98 

A  city  wishes  to  borrow  $90,000  for  30  years,  this  debt  to  be 
extinguished  either  by  a  sinking  fund  or  by  an  issue  of  serial 
loan  bonds  payable  so  much  per  annum.  Which,  in  your 
opinion,  would  be  the  better  method  and  why?  Answer  fully, 
and  differentiate  clearly  between  these  two  methods  of  extin- 
guishing the  debt. 

(Massachusetts  C.  P.  A.) 


322  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Bibliography 

Corporations 
Bell,    Spurgeon.     Accounting    Principles.     New    York,    1921.     Chapw. 
xxiv-xxix. 

Bennett,  Robert  J.     Corporation  Accounting.     New  York,  1916. 
Cole,  William  Morse.     Accounts:  Their  Construction  and  Interpretation. 

Boston  and  New  York,  1915. 

The  Fundamentals  of  Accounting.  Boston,  1921.     Chap.  xvi. 
CoNYNGTON,  Thomas.     Corporate  Organization  and  Management.     New 

York,  1917. 
Cox,   Henry  C.     Advanced  and  Analytical  Accounting.     Business  Ac- 
counting, Vol.  IV,  New  York,  1920.     Chaps,  v-vi  and  xiv-xv. 
Dewing,  Arthur  Stone.     The  Financial  Policy  of  Corporations.     New 

York,  1921. 
Dickinson,  Arthur  Lowes.     Accounting  Practice  and  Procedure.     New 

York,  1913.     Chap.  viii. 
EsQUERRE,  Paul-Joseph.     Applied  Theory  of  Accounts.     New  York,  1914. 

Chaps,  ii-iv. 

Practical  Accounting  Problems — Theory  Discussion   and  Solutions — 

Part  I.     New  York,  1921. 
Gerstenberg,   Charles   W.     Materials  of   Corporation   Finance.     New 

York,  1915. 
Oilman,  Stephen.     Principles  of  Accounting.     Chicago,  1916.     Chap.  x. 
Greeley,  Harold  Dudley.     Theory  of  Accounts — Vol.  i.  Business  Ac- 
counting.    New  York,  1920.     Chap,  xxxiii. 
Greendlinger,  Leo.     Financial  and  Business  Statements.     New  York, 

1919.     Modern  Business,  Vol.  22,  Accounting  Practice.     New  York, 

1914. 
Hatfield,  Henry  Rand.     Modern  Accounting.     New  York,  1913. 
Kbster,  Roy  B.     Accounting  Theory  and  Practice.     New  York,   1917. 

Vol.  I,  chaps.  XLViii-XLix.     Vol.  ii,  1918. 
Klein,  Joseph  J.     Elements  of  Accounting.     New  York,  1918.     Chap.  vi. 
Madden,  John  T.     Accounting  Practice  and  Auditing.     New  York,  1917. 

Chaps,  xi-xii. 
McKinsey,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,  1921. 

Vol.  II,  Series  B,  chaps,  xxxbii-xli. 
Paton,  William  A.,  and    Stevenson,  R.  A.     Principles  of  Accounting. 

New  York,  1918.     Chaps,  xii-xiv. 
Rittenhouse,  Charles  F.,  and  Clapp,  Philip  F.     Accounting   Theory 

and  Practice.     New  York,  1919.     Vol.  ii,  chaps,  vii-xvii. 
Saliers,  Earl  A.     Accounts  in  Theory  and  Practice.     New  York,  1920. 

Part  IV,  pages  145-186. 
Walker,  William  H.     Corporation  Finance.     New  York,  1917. 

Mergers,  Holding  Companies  and  Consolidated  Balance  Sheets 
Bennett,  Robert  J.     Corporation  Accounting.     New  York,  1917.     Chaps. 

XXVIII-XXXII. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  323 

Cox,  Henby  C.  Advanced  and  Analytical  Accounting.  Business  Ac- 
counting, vol.  IV.     New  York,  1920.     Chaps,  xxvi-xxviii. 

Dickinson,  Arthur  Lowes.  Accounting  Practice  and  Procedure.  New 
York,  1913.     Chap.  viii. 

EsQUERRE,    Paul-Joseph.     Applied    Theory    of    Accounts.     New    York, 

1914.  Chap.  XXXVIII. 

Greendlinger,  Leo.     Financial  and  Business  Statements.     New  York, 

1919.     Modern  Business,  vol.  22,  chap.  xx. 
Kester,   Roy  B.     Accounting  Theory  and  Practice.     New  York,   1918. 

Vol.  II.     Pages  331-338  and  chaps,  xxviii-xxix  and  chap,  xxxiv. 
Klein,   Joseph  J.     Elements  of  Accounting.     New  York,    1915.     Pages 

145-154. 
Montgomery,  Robert  H.     Auditing  Theory  and  Practice.     New  York, 

1915.  Chap.  XXI. 

Wildman,  John  R.     Principles  of  Accounting.     New  York,  1914.     Chap. 

XXVI. 

Bonds  and  Bond  Sinking  Funds 

Bell,  Spurgeon.     Accounting  Principles.     New  York,  1921.     Chap,  xxvil 
Bennett,  Robert  J.     Corporation  Accounting.     New  York,  1917.     Chaps. 

XIV-XXII. 

Cox,  Henry  C.  Advanced  and  Analytical  Accounting.  Business  Ac- 
counting, vol.  IV.     New  York,  1920.     Chaps,  ix-xi. 

Dickinson,  Arthur  Lowes.     Accounting  Practice  and  Procedure.     New 
York, 
1914.     Pages  133-143  and  148. 

Esquerre,  Paul-Joseph.  The  Apphed  Theory  of  Accoimts.  New  York, 
1914.  Chap,  xxviii. 

Hatfield,  Henry  R.  Modern  Accounting.  New  York,  1913.  Chap, 
xiv. 

Kester,  Roy  B.  Accounting  Theory  and  Practice.  Vol.  ii.  New  York, 
1918.     Chaps.  XV,  xx  and  xxv. 

RiTTENHOUSE,  Charles  ¥.,  and  Clapp,  Philip  F.  Accounting  Theory 
and  Practice,  vol.  ii.     New  York,  1919.     Chap.  x-xi. 

Wildman,  John  R.  Principles  of  Accounting.  New  York,  1913.  Chaps, 
xxvi  and  xxrx. 


SECTION  III 
DEPRECIATION,  RESERVES  AND  SURPLUS 

Group  A— Depreciation  and  Reserves 

Problem  124 

A    machine    costing   $81    is   estimated  to  have  a  life  of  four 
years,  with  a  residual  value  of 


Required: 

(a)  Set  up  a  schedule  showing  the  annual  depreciation  un- 
der each  of  the  following  methods :  Straight  line,  Con- 
stant percentage  of  diminishing  value,  Annuity  method. 
Sinking  Fund  method  (for  convenience  in  arithmetical 
calculation,  assume  the  rate  of  interest  to  be  10%) 

(b)  Submit  the  formula  used  for  each  method,  showing 
how  you  arrived  at  the  figures  shown  in  the  schedule 

(c)  Discuss  the  significance  of  each  of  the  methods. 

(From  American  Institute  Examination) 

Comments. — The  figures  in  this  problem  are  such  that  the  results  may  be 
readily  worked  out  by  arithmetic  from  the  formulae. 

In  preparing  the  schedule  called  for  in  (a),  set  the  figures  up  in  four 
columns  properly  labelled  at  the  top  for  the  various  methods. 


Problem  125 

A  machine  which  cost  $10,000  has  an  estimated  life  of  12 
years  and  a  scrap  value  of  $75.  The  periodic  charge  for  depre- 
ciation as  determined  from  formula  for  annuity  method  at  4% 
interest  is  $1,060.50. 

32fv 


326  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  Set  up  a  schedule  covering  the  first  three  years  of 
the  Hfe  of  the  asset 

(b)  Assuming  that  Reserve  for  Depreciation  account  is  to 
be  kept,  show  the  journal  entry  that  would  be  made  at 
the  end  of  the  first  year. 


Problem  126 

Cost 

Estimated  Life 

Scrap  Value 

$50  000 

50  years 

$1  000 

20  000 

20  years 

2  000 

5  000 

5  years 

100 

10  000 

3  years 

100 

Buildings 
Machinery 
Tools 
Patterns 

Required. — Explain  clearly  and  show  figures  illustrating  three 
different  methods  of  arriving  at  the  amount  to  charge  annually 
for  the  depreciation  of  the  above  items. 

{From  Wisconsin  C,  P.  A.  Examination) 


Problem  127 

A  machine  costing  $10,000  was  estimated  to  have  a  life  of  10 
years,  with  a  residual  value  of  $1,000.  At  the  close  of  each  year 
a  charge  of  $900  was  made  and  a  similar  amount  credited  to 
"Reserve  for  Depreciation."  Just  prior  to  closing  the  books  at 
the  end  of  the  tenth  year  the  machine  was  discarded  and  sold, 
bringing  $2,000,  and  a  similar  machine  was  bought  costing 
$15,000. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  327 

Required. — Journal  entries  to  close  the  books  at  the  end  of  the 
tenth  year  in  order  to  cover  these  transactions  and  to  make 
necessary  adjustments.     Interest  is  not  to  be  calculated. 

(From  American  Institute  Examination) 


Problem  128 

A  corporation  has  been  accustomed  to  charge  the  purchase  of 
machinery  to  the  Machinery  account  at  cost,  and  each  year  to 
charge  the  Manufacturing  account  and  to  credit  a  Reserve  for 
Depreciation  account  with  an  amount  which  will  offset  the  cost 
of  the  machinery  by  the  time  it  is  estimated  that  it  will  be  advis- 
able to  scrap  the  machines.  During  the  period  that  you  have 
been  employed  to  audit  the  account,  you  find  that  the  corpora- 
tion has  sold  two  machines  for  $500  each,  and  this  amount  has 
been  credited  to  the  Machinery  account.  One  of  them  cost 
$1,000,  and  the  amount  reserved  for  depreciation  on  this  machine 
is  $600.  The  other  cost  $1,500,  and  the  amount  reserved  for 
depreciation  is  $850. 

Required. — Adjusting  entries  to  correct  the  books. 

(From  Massachusetts  C.  P.  A.  Examination) 


Problem  129 

The  Auburn  Manufacturing  Company  has  an  account  with 
Fixtures  showing  a  total  cost  of  $46,880  which  were  bought  as 
follows : 

$1  005 

4  505 

6  115 

1918        17  810  1922         7  178 


1915 

$  5  115 

1919 

1916 

3  002 

1920 

1917 

2  150 

1921 

328  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

No  depreciation  has  ever  been  provided,  a  condition  which  it 
is  now  desired  to  correct.  The  estimated  hfe  is  ten  years  from 
the  date  of  purchase. 

Required. — Make  entry  for  setting  up  a  reserve  account  cover- 
ing depreciation  for  the  entire  period  during  which  the  fixtures 
have  been  used,  including  depreciation  for  the  current  year  ending 
December  31,  1922. 

Comments. — Instead  of  figuring  depreciation  for  each  year  separately 
the  aggregate  for  each  item  may  be  used;  for  instance,  80%  of  the  first  item 
represents  depreciation;  70%  of  second,  etc.  The  total  depreciation  for 
1922  represents  a  charge  to  Depreciation  or  to  Profit  and  Loss,  while  that 
of  previous  years  should  be  charged  to  Surplus. 


Problem  130 

An  account  with  Reserve  for  Depreciation  of  DeHvery  Equip- 
ment showed  on  December  31,  1920,  a  balance  of  $940.80.  The 
Delivery  Equipment  account  of  the  same  date  showed  a  balance 
of  $13,968.40. 

In  August,  1920,  a  horse  died  which  cost  $300,  no  entry  being 
made  at  the  time.  Three  years'  depreciation  had  already  been 
provided  for  at  the  time  of  the  horse's  death  at  the  rate  of  10% 
per  annum,  based  on  cost. 

In  October,  1920,  a  horse  which  cost  $275  was  sold  for  $175,  the 
difference  between  cost  and  selling  price  having  been  charged  to 
the  Reserve  account.  This  horse  was  bought  at  the  same  time 
the  other  one  was  and  the  same  depreciation  has  been  provided 
for. 

Required. — Make  necessary  adjusting  entries. 


CLASSIFIED   PROBLEMS  AND   EXERCISES 


329 


•  Problem  131 

The  Keystone  Machine  Company  has  followed  the  policy  of 
crediting  depreciation  on  fixed  assets  directly  to  the  ledger 
accounts  kept  with  such  assets,  arbitrary  amounts  being  written 
off  to  cover  depreciation  at  the  close  of  each  fiscal  period.  At 
the  time  of  closing  the  books  on  June  30,  1917,  on  the  advice  of 
an  accountant,  it  is  decided  to  abandon  such  an  unscientific 
policy  and  the  accountant  is  authorized  to  outline  a  series  of 
entries  by  which  proper  reserve  accounts  may  be  opened  cover- 
ing the  entire  period  during  which  the  assets  have  been  in  use. 

To  enable  the  accountant  to  do  so,  the  following  data  are 
obtained  regarding  the  accounts: 

Buildings:  i, 

Cost     • 

Depreciation  written  off  to  12/31/16 
Estimated  life  from  12/31/16 

Machinery  and  Equipment: 
Cost 

Cost  of  replacements 
Depreciation  written  off  to  12/31/16 
Estimated  life  from  12/31/16 

Power  Plant: 
Cost 

Cost  of  replacements 
Depreciation  written  off  to  12/31/16 
Estimated  life  from  12/31/16 

Office  Equipment: 
Cost 

Cost  of  replacements 
Depreciation  written  off  to  12/31/16 
Estimated  life  from  12/31/16 

Horses,  Wagons  and  Harness: 

Cost 

Cost  of  replacements 

Depreciation  written  off  to  12/31/16 

Estimated  life  from  12/31/16 

Required. — Prepare  journal  entries,  with  complete  explana- 
tions, by  which  the  new  policy  may  be  put  into  effect,  provision 
being  made  at  the  same  time  for  the  depreciation  applicable  to 
the  current  6  months'  period. 


$90  000  00 

16  700  00 

20  years 

$50  000  00 

5  000  00 

14  375  00 

8  years 

$8  000  00 

1  500  00 

4  000  00 

4  years 

$  6  500  00 

700  00 

1  635  00 

8  years 

14  500  00 

1  200  00 

7  340  00 

6  years 

330  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — This  problem  requires  considerable  thought.  In  the  first 
item,  Buildings,  the  current  depreciation  will  be  based  on  the  book  value  of 
the  property  at  12/31/16,  inasmuch  as  the  estimated  life  of  20  years  dates 
from  that  time.  On  a  basis  of  20  years,  the  depreciation  for  the  current 
6  months  will  therefore  be  2^%  of  $73,300  ($90,000- $16,700),  or  $1,832.50. 

In  the  item  Machinery  and  Equipment,  a  new  element,  that  of  replace- 
ments, is  introduced.  The  replacements  were  no  doubt  charged  to  the  asset, 
while  the  depreciation  was  credited  to  the  same  account,  so  that  the  asset 
has  actually  been  written  down  for  the  difference  or  $9,375  ($14,375— 
$5,000).  The  entry,  then,  to  write  the  asset  up  to  cost  and  set  up  the 
reserve  for  depreciation  as  of  12/31/16  is  to  charge  Machinery  and  Equip- 
ment account  and  credit  Reserve  for  Depreciation  of  Machinery  and  Equip)- 
ment  for  $9,375.  This  is  equivalent  to  setting  up  the  reserve  for  the  entire 
depreciation  of  $14,375,  and  then  charging  same  with  the  $5,000  replace- 
ments which  would  be  the  proper  procedure.  The  book  value  and  current 
depreciation  would  then  be  found  as  in  the  item  for  Buildings. 

The  remaining  items  will  be  handled  the  same  as  the  Machinery  and 
Equipment  item. 


Problem  132 

In  your  examination  of  the  Automobile  Delivery  Truck  ac- 
count of  a  company,  you  find  the  following  entries: 

Debits 

Jan.  1,  1914,  Trucks  1,  2,  3,  4,  at  $1,200 
July  1,  1914,  Truck  5 
Aug.  1,  1914,  Truck  6 

Credits 

Aug.  1,  1913,  Truck  2 
Sept.  1,  1914,  Truck  4 

Balance,  September  1,  1914  $6  150 

The  Reserve  for  Depreciation  for  Automobile  Delivery  Truck 
account  stood  credited  on  January  1,  1914,  with  $1,800. 

Upon  analyzing  the  transactions  represented  by  these  items, 
you  find  the  following  facts: 


$4  800 

1  500 

1  500 

$  900 

750 

CLASSIFIED  PROBLEMS  AND   EXERCISES  331 

(a)  Truck  5  purchased  July  1  replaced  Truck  1.  The  portion 
of  the  reserve  for  depreciation  accumulated  on  January  1  for 
Truck  1  amounted  to  $900.  Truck  5  was  purchased  on  open 
account. 

(b)  Truck  2  was  traded  in  for  $850  on  the  purchase  of  Truck 
6  costing  $1,500.  The  difference  was  paid  in  cash.  The  reserve 
which  had  accumulated  for  depreciation  on  Truck  2  on  January 
1  amounted  to  $300. 

(c)  Truck  4  was  totally  destroyed  in  an  accident  September  1. 
The  reserve  for  depreciation  on  this  truck  amounted  on  January 
1  to  $300  and  it  was  insured  for  $750. 

Assume  the  rate  of  depreciation  to  be  25%  per  year. 

Required.  —Give  journal  entries  which  would  properly  record 

the  above  facts,  and  show  the  balances  of  all  accounts  affected 

as  of  September  1,  1914. 

(From  Wisconsin  C.  P.  A.  Examination) 

Comments. — In  solving  this  problem,  start  with  the  balance  of  the  Auto- 
mobile Delivery  Trucks  account  on  January  1,  1914,  which  is  $4,800,  repre- 
senting the  cost  of  Trucks  1,  2,  3,  and  4  at  $1,200  each.  Disregard  the 
other  items  in  the  account,  and  set  up  journal  entries  for  data  in  (a),  (b), 
and  (c)  as  they  should  have  been  set  up  at  the  time  the  transactions  oc- 
curred. This  will  result  in  restating  the  asset  account  for  Trucks  and  will 
affect  various  other  accounts,  the  balances  of  which  will  be  listed  as  a 
part  of  the  solution. 


Problem  133 

The   Western   Hardware   Company   has   the   following  .fixed 

assets : 

Estimated  Estimated 

Cost         Scrap  Value  Life  in  Years 

Buildings                                                  $100  000        $35  000  20 

Machinery                                                   70  000          25  000  15 

Tools                                                          20  000            5  000  10 

Patterns                                                       10  000  8 


332  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  Determine  the  average  life  of  the  above  assets 

(b)  After  determining  the  average  Hfe  of  the  fixed  assets, 
state  the  amount  of  annual  depreciation  by  the  straight 
line  method. 

(From  American  Institute  Examination) 


Rate 

Cost 

Scrap  Value 

2% 

$51  000 

$1  000 

10% 

11  000 

1  000 

20% 

12  000 

2  000 

10% 

4  100 

100 

Problem  134 

The  A  Manufacturing  Company  has  four  general  types  of 
depreciable  assets. 

Buildings 
Machinery  A 
Machinery  B 
Office  Equipment 

The  directors  desire  to  keep  but  one  Reserve  for  Depreciation 
account,  and  they  request  you  to  determine  the  composite  rate 
which  may  be  used  in  determining  the  annual  depreciation 
charge. 

Required. — Determine  the  composite  rate  as  requested,  tabu- 
late the  necessary  facts  used  in  determining  it,  and  comment  upon 
the  practicability  of  such  a  plan. 

(From  Wisconsin  C.  P.  A.  Examination) 


CLASSIFIED   PROBLEMS  AND   EXERCISES  333 

Group  B — Depreciation  and  Reserves — Theory  Questions 

T-99 

What  do  you  understand  by  "depreciation"  and  how  should 
it  be  provided  for  on  the  books  of  a  manufacturing  company 
owning  its  plant  and  equipment?  Wherein  does  depreciation 
differ  from  renewals  and  repairs  and  can  it  be  avoided  through 
any  system  of  bookkeeping? 

(C.  P.  A.) 


T-lOO 

(a)  Explain  the  theory  upon   which  periodical  depreciation 
charges  are  based. 

(b)  How  is  the  inclusion  of  such  charges  in  production  costs 
justified? 

(c)  How  should  a  Reserve  for  Depreciation  be  shown  in  the 
balance  sheet?     Why? 

{Ohio  C.  P.  A.) 


T-101 

Should  depreciation  be  written  off  the  accounts  of  a  corpora- 
tion whose  property  is  of  a  wasting  nature,  such  as  a  quarry  or 
a  mine? 

Give  reasons. 


T-102 

The  A  Company  had  an  appraisal  made  early  in  January  and 
after  completing  the  annual  audit  for  the  A  company,  the  direc- 
tors authorize  you  to  record  upon  the  books  the  proper  values 
as  given  in  the  appraisal.  Among  the  terms  used  in  the  ap- 
praisal company's  report  are  the  following: 

1.  Sound  value. 


334  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

2.  Depreciated  value. 

3.  Replacement  value. 

4.  Insurable  value. 

5.  Book  value. 

Define  each  of  these  terms  and  state  definitely  just  what  values 
it  would  be  proper  to  record  upon  the  books. 

(Wisconsin  C.  P.  A.) 


T-103 

The  Cereal  Food  Company  manufactures  a  brand  of  break- 
fast food  according  to  a  secret  process.  Their  engineers  design 
a  special  machine  for  its  manufacture,  ten  machines  of  this 
design  being  made  by  the  Beckworth  Machine  Company. 

The  cost  of  each  machine  is  $3,600;  the  estimated  life  is  10 
years;  the  scrap  value  $100. 

As  an  accountant,  you  are  asked  to  work  out  a  method  for 
reckoning  depreciation  on  the  machine,  the  depreciation  to  be 
included  in  the  cost  to  produce  the  food.  Your  attention  is 
called  to  the  fact  that  the  business  has  been  quite  profitable  due 
largely  to  the  extensive  advertising  done  by  the  company. 
Their  success,  however,  has  attracted  capital  in  large  quantities 
to  this  field  and  new  companies  are  constantly  being  organized 
for  the  manufacture  of  a  variety  of  competing  foods,  with  the 
result  that  the  ability  of  the  company  to  maintain  their  present 
sales  and  profits  is  rather  uncertain.  Prepare  your  report  cover- 
ing the  following  points: 

(a)  Method  of  reckoning  depreciation. 

(b)  Method  of  bringing  it  on  the  books. 

(c)  Treatment  of  repairs. 


T-104 

The  directors  of  a  manufacturing  corporation  assert  that, 
because  the  selling  value  of  the  land  on  which  the  plant  is 
situated  has  increased  beyond  the  probable  amount  of  plant 
depreciation,  no  allowance  for  plant  depreciation  is  necessary. 


CLASSIFIED   PROBLEMS  AND   EXERCISES  335 

State  (a)  your  view  o^  the  propriety  of  this;  and  (b)  the  reasons 
supporting  your  answer. 

{Massachusetts  C.  P.  A.) 


T-105 

The  book  value  of  the  plant  of  a  corporation  has  been  reduced 
to  a  nominal  sum.  Under  this  condition,  state:  (a)  whether 
periodically,  a  reservation  should  be  made  of  an  amount  estimated 
to  cover  depreciation;  and  (b)  the  reasons  supporting  your  answer. 

{Massachicsetts  C.  P.  A.) 


T-106 

A  corporation  makes  a  practice  of  charging  to  expense  and 
carrying  to  depreciation  reserve  account  every  half  year  a  cer- 
tain percentage  of  the  book  value  of  its  plant  and  machinery. 
Should  repairs  and  renewals  be  charged  to  profit  and  loss,  or  can 
they  properly  be  charged  to  depreciation  reserve  account? 
Give  reasons  in  full. 

(Massachusetts  C.  P.  A.) 


T-107 

A  mill  sells  a  lot  of  its  old  machinery  for  $7,300,  and  credits 
the  amount  to  Repairs  account.  State  (a)  your  opinion  thereof, 
and  (b)  the  reasons  supporting  your  answer. 

(Massachusetts  C.  P.  A.) 


T-108 

Give  some  general  principles  which  will  guide  you  in  deter- 
mining whether  too  much  or  too  little  provision  has  been  made 
for  depreciation  of  buildings,  machinery,  tools,  good-will,  pat- 


336  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

ents,  franchises.     Would  a  flat  rate  cover  all  these  assets  satis- 
factorily? 

(American  InstitiUe) 


T-109 

On  pointing  out  the  insufficiency  of  the  provision  for  depre- 
ciation on  machinery,  which  the  directors  admit,  you  are  met 
with  the  argument,  supported  by  evidence,  that  the  real  estate 
values  have  appreciated  to  an  even  greater  extent  than  the 
entire  depreciation  of  other  assets.  As  this  latter  is  not  taken 
up  on  the  books  you  are  asked  to  allow  the  one  to  offset  the 
other.     Give  reasons  for  your  agreement  or  disagreement. 

(American  Institute) 


T-110 

The  X  Y  Z  Company  established  for  10  years  has  a  machinery 
and  equipment  account  which  has  been  increased  from  year  to 
year  as  new  equipment  purchases  have  been  made.  It  appears 
also  that  certain  renewals  and  repairs  have  been  charged  to  this 
account.  Each  year  a  credit  has  been  made  to  the  account  for 
depreciation,  offset  by  a  corresponding  debit  to  profit  and  loss 
account,  the  ratio  of  depreciation  being  adequate.  The  com- 
pany now  disposes  of  a  part  of  its  plant  at  a  price  equal  to  what 
was  paid  for  it  7  years  previously  and  credits  the  entire  amount 
to  Machinery  and  Equipment  account.  What  adjustments, 
if  any,  are  needed  to  correct  the  account? 

(American  InstitiUe) 


T-111 

You  are  asked  by  a  client  to  discuss  with  him  the  question  of 
reserves  for  depreciation  and  depletion  of  his  various  capital 
assets.  State  your  position  on  this  subject  and  enumerate  the 
considerations  you  would  advance  in  support  thereof.     Would 


CLASSIFIED  PROBLEMS  AND   EXERCISES  337 

you  or  would  you  not  be  guided  by  the  rules  laid  down  by  the 
internal  revenue  authorities  in  deciding  upon  the  rates  to  be 
used? 

{American  Institute) 


T-112 

How  should  a  re-appraisal  of  capital  assets  be  treated  on  the 
books  of  a  going  concern — 

(a)  When  it  involves  an  appreciation? 

(b)  When  it  involves  a  depreciation? 

(American  Institute) 


T-113 

It  has  recently  been  urged  that  if  the  replacement  cost  of 
fixed  assets  is  greatly  in  excess  of  their  cost,  depreciation  should 
be  computed  on  replacement  values,  so  that  the  reserve  for 
depreciation  will  be  equal  to  the  replacement  value  when  the 
time  comes  for  abandoning  the  old  property  and  acquiring  new. 
It  is  contended  that  if  this  procedure  is  followed  the  company 
will  have  sufficient  cash  to  make  replacements  without  impairing 
the  capital.     State  your  opinion  in  regard  to  this  matter. 

{American  Institute) 


338  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  C. — Adjustments  and  Analysis  of  Surplus 

Problem  135 

An  accountant  is  engaged  by  a  certain  concern  to  draw  up 
financial  statements  and  to  close  the  books  as  of  December  31, 
1920.  He  finds  that  no  provision  for  accrued  or  prepaid  items 
was  made  when  the  books  were  closed  December  31,  1919,  and 
he  also  locates  certain  errors  as  indicated  in  the  following: 
Accrued  wages  and  salaries,  December  31,  1919,  $1,460;  Decem- 
ber 31,  1920,  $2,000;     Insurance  paid  in  advance,  December  31, 

1919,  $360;  December  31,  1920,  $180;  Accrued  interest  on 
mortgage,  December  31,  1919,  $1,200;  December  31,  1920, 
$1,200. 

Goods  received  prior  to  December  31,  1919,  and  included  in 
the  inventory  of  that  date  but  not  entered  on  the  books  until 
January,  1920,  $9,000.  Error  in  taking  inventory,  December 
31,  1919,  $2,500  too  little.  Depreciation  on  real  estate — esti- 
mated—for 1919,  $6,500;  for  1920,  $7,000. 

Required. — The  necessary  adjusting  entries  with  full  particulars. 

Comments. — All  items  affecting  profits  of  previous  periods  are  adjusted 
through  the  Surplus  account.  In  the  first  item  given  above,  if  the  accrued 
wages  and  salaries  had  been  properly  recorded  on  December  31,  1919, 
Salaries  and  Wages  account  would  have  been  charged  $1,460,  and  the 
profit  for  the  period  ending  on  that  date  would  have  been  reduced  by  that 
amount.  In  making  adjusting  entry  on  December  31,  1920,  therefore,  Sur- 
plus account  is  charged  with  $1,460.  If  wages  and  salaries  had  been  accrued 
to  the  extent  of  $1,460  on  December  31,  1919,  and  the  accrual  amounts  to 
$2,000  on  December  31,  1920,  then  the  difference,  or  $540,  is  the  amount 
chargeable  to  the  current  period's  profits  through  the  regular  expense 
account,  Salaries  and  Wages.     The  completed  adjustment  on  December  31, 

1920,  will  then  appear: 

Surplus  $1  460 

Wages  and  Salaries  540 

Wages  and  Salaries  Accrued  $2  000 

The  same  general  principle  is  followed  in  adjusting  the  other  items 
given  in  this  problem.  If  the  adjustment  increases  profits  of  previous  periods, 
Surplus  account  is  credited  and  vice  versa.  The  points  to  bear  in  mind 
are:  (1)  that  each  period  must  be  credited  with  income  and  charged  with 
expenses  applicable  to  that  period;  (2)  that  in  so  doing  at  the  end  of  a  series 
of  fiscal  periods,  Surplus  represents  prior  periods'  profits,  while  the  usual 
expense  and  income  accounts  represent  the  current  period's  profits;  (3) 
that  the  adjustment  is  made  on  the  books  at  the  close  of  the  last  fiscal 
ix'riod  only — in  this  problem  on  December  31,  1920. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  339 

Problem  136 

In  taking  up  the  audit  of  the  accounts  of  a  company  for  the 
year  ending  December  31,  1922,  you  find  that  the  adjustments 
made  at  the  previous  audit  for  the  year  1921  have  not  been 
taken  on  the  books,  and  that,  therefore,  the  books  are  not  in 
agreement  with  the  audited  accounts  as  of  that  date.  Assuming 
the  following  were  the  adjustments  referred  to,  what,  if  any, 
disposition  would  you  make  of  the  items  at  this  audit,  illustrating 
your  answer  with  journal  entries,  viz.: 

To  record: 

(1)  Invoices  for   Merchandise  in   Transit  at   December  31, 

1921,  not  on  books 

(2)  Invoices  for  Merchandise  received,  but  not  entered 

(3)  Reserve  for  Bad  Debts  (said  debts  were  written  off  in 

1922) 

(4)  Factory  Expense  Bills  for  1921  not  entered  until  Jan- 

uary, J922 

(5)  Pay-RoU  accrued  at  December  31,  1921 

(6)  Insurance  Premiums  paid  in  advance  at  December  31, 

1921 

(7)  Taxes  for  year  ending  December  31,  1921,  not  entered 

until  May,  1922 

(8)  Reserve  against  excess  valuation  of  Inventory,  Decem- 

ber 31,  1921 

(9)  Depreciation  not  taken  up  on  books  prior  to  January, 

1921,  $5,000;  year  ending  December  31,  1921,  $1,000       6  000  00 
(10)  To  write  off  an  unlocated  difference  in  the  Accounts  Re- 
ceivable   Controlling    Account    at    December,    1921, 
which,  however,  was  located  and  canceled  in  1922  1  500  00 

Required. — Necessary  adjusting  entries  as  of  December  31, 
1922. 

(From  Illinois  C.  P.  A.  Examination) 

Comments. — Assuming  that  the  books  are  closed  for  1922,  it  will  be  neces- 
sary to  reopen  the  Profit  and  Loss  account  and  adjust  items  appUcable  to 
1922  through  that  account.  Items  affecting  1921  profits  will  be  adjusted 
through  Surplus  account. 

It  may  be  assumed  in  (2)  that  the  merchandise  has  not  been  received, 
and,  therefore,  is  not  included  in  the  inventory.  This  being  the  case,  no 
entry  is  necessary. 

Item  (3)  means  that  bad  debts  applying  to  1921  were  written  off  in  1922, 
and  adjustment  should  be  made  accordingly. 


5 

000 

00 

10 

000 

00 

2 

000  00 

750  00 

6 

000 

00 

500 

00 

1 

000 

00 

10 

000 

00 

340 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Problem  137 

The  books  of  the  X  Manufacturing  Company  were  audited 
to  December  31,  1920,  and  in  making  up  the  Balance  Sheet  and 
Profit  and  Loss  Account  at  that  date  the  auditors  recommended 
the  following  adjustments: 

(a)  Transferred  to  Profit  and  Loss  $4,231.07  which  had  been 
charged  to  real  estate  and  buildings  in  error. 

(b)  Provided  for  depreciation  of  buildings,  etc.,  $7,200. 

(c)  Adjusted  salaries  amounting  to  $1,400  due  for  1920 
services  but  not  entered  on  the  books  until  January,  1921. 

(d)  Reduced  the  amount  of  Inventory  because  of  errors,  $12,000. 
The  same  auditors  were  again  called  in  to  audit  the  books  to 

June  30,  1921,  and  found  that  the  above  adjustments  had  not 
been  entered  on  the  books.  They  also  found  that  during  the  half 
year  $1,000  had  been  charged  to  real  estate,  buildings,  etc., 
instead  of  to  expense;  that  no  provision  had  been  made  for 
depreciation  for  the  period  amounting  to  $3,600  and  that  the 
inventory  had  been  footed  $10,000  too  much.  Also,  that  the 
unexpired  insurance  amounted  to  $750  more  than  was  entered 
on  the  books.  The  following  are  condensed  trial  balances  of  the 
X  Manufacturing  Company  books  as  the  auditor  found  them  as 
of  December  31,  1920,  and  June  30,  1921: 


December  31,  1920 

June  30,  1921 

Real  Estate,  Buildings, 

etc. 

$102  840  26 

$115  226  80 

Capital  Stock 

$200  000  00 

$200  000  00 

Debentures 

100  000  00 

100  000  00 

Cash 

14  672  14 

22  143  21 

Accounts  Payable 

9  431  17 

11  698  21 

Accounts  Receivable 

22  436  10 

28  250  40 

Loans 

10  000  00 

5  000  00 

Stocks  and  Bonds 

17  502  50 

19  150  00 

Inventory 

246  153  42 

288  360  14 

Unexpired  Insurance 

1  471  23 

742  26 

Surplus 

85  644  48 

85  644  48 

Profit  and  Loss,  1914 

$405  075  65 

71  530  12 

$405  075  65 

$473  872  81 

$473  872  81 

Required: 

(a)  A  correct  balance  sheet,  June  30,  1921 

(b)  State  the  adjusted  amount  of  profits  for  the  half  year 
to  June  30,  1921 


CLASSIFIED  PROBLEMS  AND  EXERCISES  341 

(c)   Prepare   £4,11  analysis  of  the  surplus  account    for   the 
period  ended  June  30,  1921. 

(Adapted  from  Massachusetts  C.  P.  A.  Examinalion) 

Comments. — The  answers  to  this  problem  are  worked  out  in  reverse  order 
to  that  stated  in  the  requirement —  (c),  (b),  and  (a). 

The  condensed  trial  balances  given  in  the  problem  are,  in  effect,  balance 
sheets.  In  preparing  (c),  use  six-column  paper,  heading  the  columns  as 
follows: 

Adjusted 
Balance  Sheet  Adjustments  Balance  Sheet 

Assets         Liabilities  Dr.         Cr.  Assets  Liabilities 

It  may  be  headed  "Reconciliation  Statement,  June  30,  1921." 

It  is  suggested  that  the  necessary  adjustments  be  journalized  and  trans- 
ferred to  a  working  sheet. 

In  the  first  two  columns  place  the  balance  sheet  above  for  June  30,  1921. 
In  the  adjustment  columns,  enter  the  adjusting  entries,  numbering  each 
entry  properly  so  that  the  debits  and  credits  may  be  readily  identified.  In 
the  last  two  columns  place  the  adjusted  figures  of  the  balance  sheet.  The 
data  for  (a)  will  then  be  taken  from  the  adjusted  figures  in  the  last  two 
columns  and  set  up  in  proper  form.  The  answer  to  (b)  will  also  be  found 
in  the  adjusted  balance  sheet  columns. 

The  condensed  trial  balance  or  balance  sheet  for  December  31,  1920,  is 
not  used  at  all  in  solving  the  problem. 

The  adjustments  are  simple  and  need  no  comment. 


Problem  138 

Watson  and  Daggett  are  engaged  in  the  manufacture  of  lathes, 
and  at  the  time  of  closing  the  books  June  30,  1920,  the  following 
facts  are  discovered  by  the  accountant: 

March  1,  the  Essex  Machine  Company  ordered  the  delivery 
of  two  lathes,  which  had  been  manufactured  for  them  and  had 
been  held  for  shipping  instructions  since  September,  1919. 
The  lathes  had  been  charged  to  the  Essex  Machine  Company 
on  September  21,  1919,  but  by  an  oversight  were  included  in 
the  inventory  taken  December  31.  One  machine  was  billed 
at  S962.50  and  the  other  at  $750. 


342 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


The  inventory  taken  December  31  was  also  found  to  contain 
the  following  clerical  errors: 

Finished  stock,  $3,100  too  much. 

Raw  materials,  $1,000  too  little. 

L.  P.  Fuller,  a  customer  of  the  company,  failed  and  his  affairs 
were  settled  in  the  bankruptcy  court,  A  final  dividend  was 
received  March  1,  1914,  leaving  an  unpaid  balance  of  $610 
which  was  charged  off  to  Profit  and  Loss.  Fuller  began  business 
anew,  and  desiring  to  make  settlement  in  full  with  all  creditors 
as  he  is  able  to  do  so,  sends  the  company  his  check  for  $300  on 
account  on  June  30,  1915.  What  entry  should  the  bookkeeper 
make? 

If  the  $610  had  been  charged  to  a  Reserve  for  Doubtful 
Accounts,  what  entry  would  you  advise  at  the  time  of  recovering 
the  $300? 

Required. — Journal  entries  to  record  adjustments  in  accord- 
ance with  above  data. 


Problem  139 
THE  HALL  MANUFACTURING  COMPANY 


Balance  Sheets 

December  31 

December  31 

Assets 

1920 

1921 

Current  Assets 

$  84  000 

$  84  800 

P'ixcd  Assets 

301  000 

393  000 

Good-Will 

30  000 

28  000 

Discount  on  Bonds 

2  000 

Investments 

25  000 

Deferred  Assets 

800 

1  250 

$440  800 

$509  050 

Liabilities 

Current  Liabilities 

$  80  000 

$  15  000 

Bonds  Payable 

200  000 

300  000 

Reserve  for  Depreciation 

20  000 

29  000 

CLASSIFIED  PROBLEMS  AND  EXERCISES  343 


$1  200 

$1  500 

16  000 

20  000 

100  000 

100  000 

23  600 

43  550 

$440  800 

$509  050 

Reserve  for  Bad  Debts 
Reserve  for  Construction 
Capital  Stock 
Surplus 


An  analysis  of  the  Surplus  account  shows  that  the  land  was 
appreciated  $30,000  during  the  year  as  the  result  of  an  appraisal ; 
good- will  was  depreciated  $2,000;  a  dividend  of  10%  was  declared 
and  paid  during  the  year;  machinery  which  cost  $7,000  was 
sold  during  the  year  for  $6,000,  the  loss  being  charged  against 
the  reserve  account;  $4,000  was  added  to  the  reserve  for  con- 
struction; the  asset  value  of  tools  was  reduced  $5,000. 

Required: 

From  the  above  prepare  the  following: 

(a)  Statement  showing  profit  of  the  business  from  operations 

(b)  Statement  showing  analysis  of  surplus  account  for  the 
year. 


Problem  140 

Following  is  a  transcript  of  the  Surplus  account  of  a  company 
covering  the  years  1916-1918: 

Credits 


December  31,  1916 

Net  Profit 

$129  600 

December  31,  1917 

Net  Profit 

110  000 

June           30,  1917 

Adjustment  of  Inventory 

2  000 

December  31,  1918 

Net  Profit 

Debits 

118  000 

January      15,  1916 

Dividend 

S  20  000 

July            15,  1916 

Dividend 

20  000 

January      15,  1917 

Dividend 

20  000 

July             15,  1917 

Dividend 

20  000 

December  31,  1917 

Good-will  reduced 

100  000 

January      15,  1918 

Dividend 

20  000 

July            15,  1918 

Dividend 

20  000 

344  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Early  in  1918,  accountants  are  called  in  to  make  an  examina- 
tion of  the  books  and  to  estimate  the  amount  of  Federal  Income 
Tax  which  the  company  will  pay.     They  discover  the  following: 

(a)  No  depreciation  of  the  machinery  was  written  off  in  1916. 
They  reckon  the  depreciation  for  this  year  to  be  $5,000. 

(b)  Error  in  inventory  of  December  31,  1916,  of  $1,000  too 
much,  which  was  never  corrected. 

(c)  Wages  accrued  as  of  December  31,  1917,  estimated  to  be 
$3,000,  were  ignored. 

(d)  Insurance  premiums  prepaid  of  $500  as  of  December  31, 
1917,  were  ignored. 

(e)  Error  in  inventory  of  December  31,  1918,  resulting  in  the 
inventory  being  $2,000  less  than  it  should  have  been. 

(f)  A  patent  costing  $5,000  was  charged  to  Manufacturing 
Expenses  in  1918. 

(g)  Insurance  Prepaid  as  of  December  31,  1918,  of  $300,  not 
shown  on  the  books. 

(h)  A  Suspense  account  with  a  debit  balance  of  $130  repre- 
senting unlocated  errors  in  trial  balances  to  be  closed  out. 

Required. — Make  adjusting  entries  for  the  above  and  set  up 
an  entirely  new  Surplus  account  for  the  three  years,  embodying 
all  adjustments,  and  balancing  the  account  as  of  December  31 
each  year,  and  carrying  forward  the  balance  to  the  following 
year. 

Comments. — This  problem  illustrates  the  analysis  of  Surplus  account  for 
tax  purposes.  In  making  the  analysis  and  adjustment  of  the  account  as 
it  stands,  it  will  be  divided  into  three  groups,  each  representing  one  year. 
The  entries  will  be  made  as  if  there  were  three  accounts  labelled  Surplus 
1916;  Surplus,  1917,  and  Surplus,  1918.  For  instance,  the  first  entry  (a) 
will  l)c  as  follows: 

Surplus,  1916  $5  000 

Reserve  for  Depreciation  of  Machinery  S5  000 

After  making  the  jovirnal  entries,  set  up  a  ledger  account  for  Surplus. 
Credit  this  account  with  1916  profit,  and  charge  it  with  1916  dividends, 
the  depreciation  referred  to  above,  and  any  other  adjustments.  Since 
there  are  no  credit  adjustments  for  1916,  the  account  is  balanced,  ruled, 
and  the  l)alan('c  l)rought  down  as  of  January  1,  1917.  The  same  process 
will  be  repeated  for  1917  and  1918. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  345 

Group  D — Surplus  and  Reserves — Theory  Questions. 

T.114 

(a)  What  is  a  Reserve  Account? 

(b)  Name  and  define  the  two  principal  classes  of  reserves 
and  distinguish  between  them  as  to  origin,  purpose,  and  ultunate 
disposition. 

(c)  What  is  a  funded  reserve? 

(Ohio  C.  P.  A.) 


T-115 

How  would  you  distinguish   between 

(a)  Earned  surplus 

(b)  Paid-in  surplus 

(c)  Capital  surplus 

(d)  Appropriated  surplus? 

(American  Institute) 


T-116 

(a)  What  items  do  you  consider  should  be  charged  or  credited 
direct  to  surplus? 

(b)  Would   you   regularly  make  small   adjustments   of  sub- 
sequently discovered  errors  through  this  account? 

(c)  Is  the  balance  at  credit  of  Surplus  ever  in  any  circumstances 
a  liability,  and,  if  so,  to  whom? 

(American  Institvle) 


T-117 

Give  some  idea  of  what  taxes  you  would  charge  against  income 
and  what  against  surplus.  Of  the  former,  which,  if  any,  would 
you  take  up  into  manufacturing  costs?  What  provision,  if  any, 
would  you  make  for  income  and  excess  profits  taxes  in  closing 


346  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

accounts  before  the  passing  of  a  pending  act  levying  these  taxes, 
either  in  general  circumstances  or  when  profits  are  partly  divisible 
under  some  special  contract  or  arrangement? 

{American  Institute) 


T-118 

A  company  had  its  fixed  assets  valued  by  an  expert,  and  the 
appraisal  disclosed  a  valuation  greatly  in  excess  of  the  book  value. 
The  excess  in  value  was  credited  to  Surplus.  If  you  see  any 
objection  '  to  this  procedure,  state  how  you  would  treat  the 
matter,  giving  your  reasons. 

{Ohio  C.  P.  A.) 


T-119 

A  manufacturing  company  sells  land  for  which  it  has  no  use, 
at  a  price  much  in  excess  of  the  book  value.  How  would  you 
treat  this  excess  on  the  books  of  the  company,  and  on  its  balance 
sheet? 

{Ohio  C.  P.  A.) 


T-120 

I  low  should  substantial  changes  in  the  value  of  capital  assets 
be  treated  in  the  accounts  in  respect  to  surplus? 

{Massachusetts  C.  P.  A.) 


T-121 

A  corporation  increases  its  capital  stock,  which  it  sells  at 
auction,  receiving  therefor,  as  premiums  above  the  par  value, 
$3,000.  The  treasurer  credits  this  amount  to  Profit  and  Loss 
account,  and,  in  his  statement,  shows  it  as  part  of  the  profits. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  347 

State:  (a)  your  opinion  thereof;  (b)  to  what  account,  if  other 
than  Profit  and  Loss,  the  amount  should  be  credited;  (c)  how 
it  should  be  shown  in  the  treasurer's  statement;  and  (d)  your 
reasons. 

(Massachusetts  C.  P.  A.) 


T-122 

It  frequently  happens  that  a  corporation  contracts  to  purchase 
property  at  an  agreed  price,  which  on  the  face  of  the  contract 
is  declared  to  be  its  value,  and  that  by  another  clause  in  the 
contract,  or  by  another  contract,  the  vendors  agree  to  provide, 
in  addition  to  the  property,  a  certain  sum  for  working  capital 
or  even  for  free  surplus. 

It  is  sometimes  rfiaintained  that  this  free  sum  so  provided  is  a 
profit  or  surplus  of  the  new  corporation  available  for  payment 
of  dividends  if  the  directors  so  determine. 

Write  a  brief  expression  of  your  opinion  as  to  the  proper 
treatment  of  the  sum  turned  back. 

(American  Institute) 


T-123 

A  corporation  owns  nearly  all  of  a  block  of  land.  The  remain- 
ing portion  is  purchased  subject  to  an  existing  lease.  The 
corporation  sets  aside  out  of  surplus  an  amount  believed  to  be 
sufficient  to  extend  its  plant  over  the  entire  block  at  the  expira- 
tion of  the  lease.  What  ledger  title  should  be  given  to  the  amount 
set  aside,  and  how  should  the  amount  be  set  up  on  the  balance 

sheet? 

(American  Institute) 


348  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-124 

The  balance  sheet  of  a  corporation  shows  the  following  credit 
balances : 

Reserve  for  depreciation 

Reserve  for  extension  of  plant 

Reserve  for  bad  and  doubtful  debts 

Sinking  fund  reserve 

Insurance  reserve 

Reserve  for  pensions 

Reserve  for  contingencies 

Reserves  for  taxes 

What  would  you  assume  to  be  the  nature  of  each  of  these 
items?  Can  better  terms  be  substituted  for  any  of  those  used? 
In  what  circumstances  would  each  of  the  above  accounts  be 
debited,  and  when  debited  what  would  be  the  corresponding 
credit?  If  the  business  were  to  be  sold  for 'the  amount  of  its 
net  worth  as  shown  by  the  balance  sheet,  which  of  these  items 
would  represent  a  proper  addition  to  the  capital  stock  in  determin- 
ing the  selling  price? 

(American  Institute) 


T-125 

Indicate,  by  appropriate  journal  entries,  the  various  debits 
and  credits  you  would  make  in  setting  up  the  following  reserves 
for  a  balance  sheet,  explaining  briefly  how  you  would  determine 
the  proper  amount  of  each  reserve: 

(a)  Reserve  for  bad  and  doubtful  debts 

(b)  Reserve  for  trade  discounts 

(c)  Reserve  for  cash  discounts 

(d)  Reserve  for  state,  county,  and  city  taxes  accrued. 

(American  Institute) 


CLASSIFIED  PROBLEMS  AND   EXERCISES  349 

Bibliography 

Depreciation,  Reserves,  and  Surplus 
Bennett,  Robert  J.     Corporation  Accounting.     New  York,  1917.     Chap. 

XXIII. 

Cole,  William  Morse.     Accounts:  Their  Con.struction  and  Interpretation. 

Boston,  1915.     Chap.  viii. 

The  Fundamentals  of  Accounting.     Boston,  1921.     Chap,  xviii. 
Cox,    Henry   C.     Advanced   and   Analytical   Accounting.     Business   Ac- 
counting, vol.  IV.     New  York,  1920.     Chaps,  vii,  viii,  xii  and  xiii. 
Dickinson,  Arthur  Lowes.     Accounting  Practice  and  Procedure.     New 

York,  1915.     Pages  148-152  and  chap.  vii. 
Esquerre,  Paul-Joseph.     Applied  Theory  of  Accounts.     New  York,  1914. 

Chap,  xxxii. 

Practical   Accounting   Problems.     Theory   Discussion  and  Solutions, 

part  I.     New  York,  1921.     Problem  15. 
Greeley,  Harold  Dudley.     Theory  of  Accounts.     Vol.  i.  Business  Ac- 
counting.    New  York,  1920.     Chap.  xxix. 
Greendlinger,    Leo.     Accounting    Practice.     New    York,    1914.     Chap. 

xxv. 

Financial  and  Business  Statements.     New  York,  1919. 
Hatfield,  Henry  Rand.     Modern  Accounting.     New  York,  1913.     Chaps. 

vii  and  xiii. 
Kester,   Roy  B.     Accounting  Theory  and  Practice.     New  York,    1918. 

Vol.  II,  chaps,  vi-xi  and  xxiii. 
Klein,  Joseph  J.     Elements  of  Accounting.     New  York,  1913.     Chap.  viii. 
MacFarland,  G.  a.,  and  Rossheim,  I.  D.     A  First  Year  in  Bookkeeping 

and  Accounting.     New  York,  1915.     Chap.  xxi. 
Madden,  John  T.     Accounting  Practice  and  Auditing.     New  York,  1917. 

Chap.  II. 
McKiNSEY,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,   1921. 

Vol.  II,  Series  B,  chap,  xlvii. 
Montgomery,  Robert  H.     Auditing  Theory  and  Practice.     New  York, 

1915.     Chap,  xviii. 
Pa  TON,  William  A.,  and  Stevenson,   R.   A.     Principles  of  Accounting. 

New  York,  1918.     Chaps,  xxii  and  xxiii. 
Saliers,  Earl  A.     Principles  of  Depreciation.     New  York,  1916. 
Wall,   Alexander.     The  Bankers'   Credit  Manual.     Indianapolis,   1919. 

Chap.  XI. 
WiLDMAN,  John  R.     Principles  of  Accoimting.     New  York,  1914.     Chaps. 

XXX,  XXXI  and  xl. 


SECTION  IV 
PARTNERSHIP   PROBLEMS 
Group  A — Admission  of  a  Partner 
Problem  141 

Allan  and  Baker  form  a  partnership  and  agree  to  share  profits 
and  losses  in  proportion  to  capital  invested.  Allen  invests 
$20,000,  and  Baker,  $10,000.  Crane  offers  to  buy  a  one-third 
interest  in  the  business  for  $10,000. 

(a)  Make  necessary  entry  to  give  Crane  his  interest  and  adjust 
capital  accounts  so  that  the  interests  of  all  three  partners  will 
be  equal. 

(b)  How  should  the  $10,000  be  divided  between  Allan  and 
Baker?  • 

Comments. — In  this  problem  it  is  evident  that  Crane  is  buying  an  interest 
from  the  old  partners,  and  that  his  purchase  money  is  to  go  to  them  per- 
sonally. The  capital  of  the  firm  will,  therefore,  not  be  increased.  He 
buys  a  one-third  interest  in  the  combined  capital  of  Allan  and  Crane. 
The  only  entry  necessary  is  to  credit  Crane  for  his  interest  and  charge  the 
old  partners  for  enough  to  make  the  capitals  equal.  The  cash  need  not 
be  brought  onto  the  partnership  books  at  all,  but  is  shared  by  the  old 
partners  in  proportion  to  capital  given  up. 


Problem  142 

Burns  and  Fox  bought  merchandise  to  the  amount  of  $12,000. 
Burns  contributed  $7,500;  Fox,  $4,500.  They  afterward  sold 
Wolf  a  one-third  interest  for  $6,000.  How  much  of  this  amount 
should  Burns  and  Fox  receive,  respectively,  in  order  to  make 
Burns,  Fox,  and  Wolf  equal  partners? 

(From  New  York  C.  P.  A.  Examination) 
3.51 


352  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — It  should  be  noted  that  Wolf  buys  a  one-third  interest  in 
assets  amounting  to  $12,000  for  $6,000.  He,  therefore,  jiays  a  bonus  of 
$2,000,  which  in  an  ordinary  firm  would  be  termed  Good-Will.  This  bonus 
represents  a  profit  to  the  partners,  Burns  and  Fox.  An  entry  should  be 
made  to  credit  Wolf  with  his  interest  and  charge  Burns  and  Fox  with  such 
an  amount  as  will  make  the  capital  accounts  of  all  partners  equal.  The 
profit  should  be  divided  in  proper  ratio.  Burns  and  Fox  is  each  entitled 
to  his  share  of  the  profits  plus  the  amount  of  investment  given  up  by  each 
in  order  to  make  the  three  men  equal  partners. 


Problem  143 

Ahern  and  Briggs  have  been  conducting  a  shoe  business. 
September  1,  1921,  Ahern's  capital  account  stands  credited 
with  $50,000,  and  Briggs'  with  S25,000.  The  firm  is  in  need  of  a 
superintendent,  and  offers  to  sell  a  one-third  interest  to  Carver 
for  $20,000.  Make  the  necessary  entry  to  admit  Carver. 
How  will  the  cash  be  divided? 

Comments. — In  this  problem,  a  one-third  interest  in  net  assets  shown  on 
the  books  at  $75,000  is  sold  for  $20,000,  or  $5,000  less  than  the  book  value. 
Charge  the  old  partners'  capital  accounts  and  credit  Carver's  capital  account 
for  his  proper  proportion  of  the  net  assets.  The  difference  between  the  value 
of  Carver's  share  in  the  net  assets  and  the  amount  paid  by  him  for  his 
share  is  a  loss  to  be  shared  by  Ahern  and  Briggs  in  their  profit  sharing  ratio. 
To  find  cash  each  receives,  deduct  from  the  value  of  the  share  of  assets 
given  up,  the  share  of  loss  due  to  sale. 


Problem  144 

Chaffee,  Dean,  and  Eller  are  partners  with  capital  balances 
as  follows:  Chaffee,  $14,000;  Dean,  $20,000;  Eller,  $26,000. 
Hearn  desires  to  buy  a  one-fourth  interest  in  the  firm.     The 


CLASSIFIED  PROBLEMS  AND   EXERCISES  353 

partners  place  a  value  of  $12,000  on  the  good-will  which  is  to 
be  set  up  on  the  books  before  Hearn  is  admitted. 

(a)  What  amount  should  Hearn  pay  the  old  pai:tners  for  his 
interest? 

(b)  Make  proper  entries  to  record  the  good- will  and  to  adjust 
the  capital  accounts  so  as  to  credit  Hearn  with  his  interest, 
the  old  partners  to  retain  their  relative  interests. 

Comments. — It  is  evident  that  Hearn  must  pay  the  old  partners  a  sum 
equal  to  one-fourth  of  the  net  assets  plus  the  good-will.  The  Good-Will 
will  then  be  charged  and  the  old  partners  credited  in  their  profit-sharing 
ratio,  after  which  each  partner  will  be  charged  with  his  proper  proportion, 
and  Hearn  credited  with  enough  to  give  him  his  one-fourth  interest. 


Problem  145 

Two  partners,  Walker  and  Preston,  find  at  the  end  of  the  first 
year's  business  that  the  balance  sheet  shows  Walker's  interest 
to  be  worth  $18,000,  and  Preston's,  $9,000.  The  good-will  of 
the  firm  is  worth  $3,000.  Each  partner  draws  profits  in  propor- 
tion to  his  investment. 

The  partners  decide  to  take  in  another  partner,  and  to  give 

him  a  one-quarter  interest  in  the  new  firm.     What  sum  must 

the  new  partner  contribute?     How  will  the  partnership  accounts 

appear  after  the  payment  of  the  new  capital?     How  will  the 

profits  be  divided? 

(From  California  C.  P.  A.  Examination) 

Comments. — The  good-will  of  $3,000  must  be  brought  onto  the  books 
and  divided  between  Walker  and  Preston  in  the  same  ratio  as  profits  are 
shared.  If  the  new  partner  is  to  invest  such  an  amount  as  will  give  him  a 
one-quarter  interest  in  the  business,  the  existing  net  worth  must  be  equal 
to  three-fourths  of  the  new  capital.  Find  the  new  capital,  and  the  differ- 
ence between  that  and  the  present  capital  will  be  the  amount  which  the 
incoming  partner  must  invest. 

It  is  to  be  noted  that  the  new  partner  contributes  capital;  and,  therefore, 
the  net  worth  of  the  firm  will  be  increased  to  the  extent  of  his  investment 
and  the  good-will. 


354  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  146 

William  Smith,  having  been  in  business  for  himself  a  number 
of  years,  decides  to  take  in  a  partner.  His  assets  aggregate 
$18,000  and  his  liabilities  $10,000.  He  makes  the  following 
proposition  to  his  brother-in-law,  John  Gray,  who  has  been  his 
office  manager  for  many  years;  the  proposal  is  made  in  writing 
as  follows: 

Give  me  $5,000  in  cash  and  I  will  make  you  an  equal  partner, 
changing  the  firm  name  to  Smith  &  Gray,  Smith  to  draw  a 
salary  of  $75  per  week  and  Gray,  $60  per  week. 

Gray  accepts  this  offer  by  writing  across  the  face  of  the 
communication,  in  red  ink;  "This  suits  me.  I  accept."  A  few 
days  later  Gray  turned  over  to  Smith  $1,200  in  currency  and  a 
check  for  $3,800. 

Required. — Prepare  necessary  entries  and  name  the  books  in 
which  they  should  be  made,  it  being  understood  that  the  books 
of  account  previously  kept  by  William  Smith  are  to  be  continued 
by  the  partnership. 


Problem  147 

(a)  Frank  has  $5,000  invested  in  a  business.     He  sells  Johns 
a  one-half  interest  for  $3,000. 

(b)  Frank  has  $5,000  invested  in  a  business.     By  investing 
$3,000,  Johns  is  given  a  one-half  interest  in  the  business. 

Make  proper  entries  under  (a)  and  (b). 

(From  Michigan  C.  P.  A.  Examination) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  355 

•  Problem  148 

At  the  end  of  the  first  year  of  a  partnership,  Grover  has  an 
interest  of  $18,000,  and  Spencer,  of  $9,000,  each  drawing  profits 
in  proportion  to  his  capital.  O'Malley  desires  to  secure  a  one- 
third  interest  in  the  firm.  The  partners  are  wilHng  to  admit  him, 
and  value  their  good-will  at  $6,000. 

In  what  two  ways  may  O'Malley  secure  his  interest? 

What  will  be  the  amount  of  his  investment  in  each  case? 

Set  up  journal  entries  to  illustrate  your  answer. 


Problem  149 

A  and  B  carried  on  business  in  partnership  and  divided  profits 
and  losses  in  proportion  to  their  capital,  three-fifths  and  two- 
fifths,  respectively.  On  January  1,  1915,  A's  capital  was 
$52,500  and  B's  $35,000,  as  shown  by  a  balance  sheet  of  that 
date.  They  agreed  to  admit  C  as  a  partner  from  the  same  date 
on  the  following  terms: 

(1)  Assets  and  liabilities  and  capital  to  be  taken  as  shown  in 
the  balance  sheet. 

(2)  $12,500  to  be  added  to  the  assets  for  good-will. 

(3)  The  amount  of  good- will  to  be  added  to  A's  and  B's  capital 
in  the  proportion  in  which  they  divide  profits. 

(4)  C  to  pay  to  the  partnership  such  a  sum  as  will  give  him  a 
one-fifth  interest  in  the  business. 

Required: 

(a)  State  what  amount  of  capital  C  has  to  bring  in 

(b)  Set  out  the  capital  account  of  each  partner  in  the  new 
partnership 

(c)  State  in  what  proportion  the  profits  will  be  divided  in 
the  future,  A  and  B,  as  between  themselves,  sharing  in 
the  same  proportion  as  before. 

(From  Washington  C.  P.  A.  Examination) 


356  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — The  terms  upon  which  C  is  admitted  are  stated  very  clearly. 
No  entry  is  necessary  for  (1).  For  (2)  and  (3)  charge  Good-Will  and  credit 
A  and  B  in  the  proportion  stated. 

For  (4),  as  C  contributes  to  the  partnership  such  a  sum  as  will  entitle 
him  to  a  one-fifth  interest,  the  net  worth,  after  bringing  on  the  good-will, 
represents  four-fifths  of  the  new  capital.  Therefore,  one-fifth  of  this 
amount  will  represent  what  C  has  to  bring  in. 

The  capital  accounts  of  the  various  partners  snould  be  set  up  in  state- 
ment form  showing  details  of  adjustments  and  the  balance  at  the  close. 

A  transfer  of  an  interest  in  the  capital  of  a  firm  usually  carries  with  it  a 
like  share  in  profits.  Therefore,  A  and  B  will  each  be  obliged  to  relinquish 
one-fifth  of  his  share  of  profits  to  C,  A  giving  up  one-fifth  of  his  three-fifths, 
and  B  one-fifth  of  his  two-fifths.  Their  share  in  profits  will  then  remain 
in  same  relative  proportion  as  before,  each  having  given  up  one-fifth  of 
his  share. 


Problem  150 


December  31,    1915,   the  following  trial   balance   was   taken 
after  closing  from  the  books  of  Dudley  and  Sealy: 


Assets 

Cash 

Accounts  Receivable 

Notes  Receivable 

Merchandise 

Real  Estate 

$ 

460  000 
550  000 
75  000 
830  000 
350  000 

Liabilities 

Accounts  Payable 
Notes  Payable 
Dudley,  Capital 
Sealy,  Capital 

$     800  000 
490  000 
525  000 
450  000 

$2 

265  000 

$2  265  000 

Profits  and  losses  are  shared  equally.     ' 

On  the  date  mentioned  above  an  agreement  is  made  to  admit 
Willard  into  the  partnership;  he  is  to  invest  in  the  business 
sufficient  cash  to  give  him  a  one-third  interest.  Inspection  of 
the  accounting  records  shows  that  of  the  accounts  and  notes 
receivable  now  carried  on  the  books,  $30,000  of  accounts  receiv- 
able and  $45,000  of  notes  receivable  are  worthless.  A  physical 
inventory  shows  the  cost  of  goods  on  hand  to  be  $890,000. 
The  good-will  is  valued  at  $150,000. 

Make  the  entries  necessary  to  adjust  the  books  and  to  show 


CLASSIFIED  PROBLEMS  AND   EXERCISES 


357 


the  admission  of  Willard.     Show  a  trial  balance  taken  from  the 
books  after  these  entries  have  been  made  and  posted. 

Comments. — It  is  necessary  to  make  adjusting  entries  to  write  off  the 
worthless  accounts  and  notes,  to  write  up  merchandise,  and  to  set  up  good- 
will. The  net  profit  or  loss  resulting  from  these  adjustments  is  carried  to 
the  capital  accounts.  The  adjusted  capital  will  then  represent  two-thirds 
of  the  new  capital,  inasmuch  as  Willard' s  investment  increases  the  capital. 


Problem  151 

Allen  and  Brown  are  equal  partners. 
June  30,  1921,  was  as  follows: 

Assets 

Merchandise  $  35  000 

Accounts  Receivable  61  000 

Furniture  and  Fixtures  2  500 

Cash  500 

Investments  3  000 

$102  000 


Their  balance  sheet  on 


Liabilities 

Accounts  Payable 

$  50  000 

Bank  Overdraft 

15  000 

Allen,  Capital 

21  000 

Brown,  Capital 

16  000 

$102  000 


Connelly  is  to  enter  the  firm.  Preliminary  thereto,  Allen  and 
Brown  revise  their  balance  sheet  by  writing  off  $15,000  for  bad 
debts;  $500  from  Furniture  and  Fixtures;  15%  from  inventory; 
25%  for  loss  on  investments;  and  they  establish  a  good- will 
of  $5,000.  Connelly  pays  enough  to  entitle  him  to  a  one-third 
interest  in  the  adjusted  net  assets. 

(a)  What  amount  does  Connelly  invest? 

(b)  Set  up  balance  sheet  of  new  firm. 


358  ACCOVNTJNG  PROBLEM^,:  INTERMEDIATE 

Group  B — Dissolution  of  Partnership 

Problem  152 

Murphy  and  Nelson,  of  Laredo,  Texas,  engaged  as  equal 
partners  in  a  stock-raising  enterprise  with  a  capital  of  $10,000, 
each  contributing  one-half. 

Murphy  received  a  salary  of  $200  per  month. 
At  the  end   of  three  years  they  decided  to  terminate  the 
business,  and  Nelson,  who  handled  all  the  money  of  the  co- 
partnership and  kept  the  books,  reported  the  following  receipts 
and  payments: 

Receipts  Payments 


Murphy's  Investment 

$  5  000 

Purchases  of  Cattle 

$57  000 

Nelson's  Investment 

5  000 

Loans  Repaid 

14  000 

Sales  of  Cattle 

80  359 

Murphy's  Salary 

4  200 

Loans 

15  000 

Interest 

1  000 

Expenses 

9  000 

Murphy's  Drawings 

2  200 

Nelson's  Drawings 

1  800 

A  round-up  and  branding  of  the  herd  showed  328  head  of 
live  stock  belonging  to  the  partnership  estimated  to  be  worth 
$5,540. 

There  remained  with  the  bankers  a  balance  of  $16,159  and 
other  assets  were  as  follows:  Horses,  $800;  Accounts  Receivable, 
$750;  Tools,  etc.,  $100;  Supphes,  $150.  Liabilities  were  as 
follows:  Due  T.  Ranch  for  branding  irons,  $40;  Salt,  $100; 
Loan  at  Bank,  $1,000;  Unpaid  Wages,  $260. 

Required: 

(a)  Balance  sheet  showing  financial  condition  of    the    co- 
])ai-tnorship  at  its  termination 

(b)  Profit  and  loss  statement  showing  results  of  the  three 
years '  operations 

(c)  Detailed  statement  of  each  partner's  interest  to  provide 
a  basis  for  dissolution  of  the  partnership. 

Comments. — This  i)rohlcni  presents  a  common  type  of  partnership  set- 
tlement, where  a  complete  set  of  books  has  not  been  kept.  From  the  data 
given,  first  prepare  an  ordinary  report  form  of  balance  sheet.  Note  that 
while  Murphy  was  to  receive  a  salary  of  $200  per  month  he  has  drawn 
during;  tlie   three  years  but  $4,200.     The  balance   of  salary   due  should 


CLASSIFIED  PROBLEMS  AND   EXERCISES  359 

therefore  be  set  up  as  a  liability  on  the  balance  sheet.  All  other  assets 
and  liabilities  are  clearly  set  forth  in  the  problem. 

Prepare  the  profit  and  loss  statement  with  as  much  detail  as  possible. 
The  accounts  receivable  for  $750  represent  sales  in  addition  to  those  shown 
under  cash  receipts. 

Cattle  represent  the  trading  goods  in  this  problem.  All  other  inventories 
will  be  shown  as  deductions  from  operating  expenses  to  which  they  have 
been  charged.  The  items,  Branding  Irons  and  Salt,  are  not  included  in 
the  $9,000  expense  item,  and  will  be  added  thereto.  These  items  are, 
however,  included  in  the  Tools  and  Supplies  inventories  as  shown  in  the 
problem.  The  details  of  partners'  accounts  are  to  be  set  up  in  statement 
form  rather  than  in  ledger  form. 


Problem  153 

Thatcher  and  Jones  are  partners,  Thatcher  having  invested 
$20,000  and  Jones  $9,000;  profits  and  losses  are  shared  equally. 
Upon  liquidation,  losses  are  suffered  so  that  the  amount  available 
for  distribution  to  the  partners  is  only  $10,000.  How  should 
the  $10,000  be  divided? 

Comments. — Upon  Uquidation  of  a  partnership  it  is  first  necessary  to 
find  the  loss  on  account  of  liquidation  of  the  assets  and  charge  same  to 
partners  in  their  profit-sharing  ratio.  No  habiUties  being  shown,  the  assets 
must  equal  the  total  net  worth  as  shown  by  the  partners'  capital  accounts. 
After  charging  loss  on  account  of  liquidation  to  capital  accounts,  each 
partner  is  given  enough  cash  to  balance  his  account,  which  will  equal  the 
amount  of  cash  on  hand. 


360  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  154 

Andrews,  Ballou,  and  Clifton  are  partners,  their  capital 
accounts  showing  Andrews,  $60,000;  Ballou,  $20,000,  and  Clifton, 
$45,000.  Upon  dissolution  the  assets  of  the  concern  are  sold  for 
$54,700. 

(a)  How  should  the  deficit  be  divided? 

(b)  Ballou  is  insolvent  and  the  claim  against  him  is  worthless. 
How  should  the  amount  available  for  distribution  be  divided? 

(c)  Show  the  partners'  accounts  as  they  would  appear  after 
the  books  had  been  finally  closed. 

Comments. — (a)  The  same  procedure  should  be  followed  as  in  Problem 
153. 

(b)  The  deficit  in  Ballou's  capital  account  should  be  charged  to  Andrews 
and  Clifton  in  the  ratio  in  which  they  share  profits  in  this  case,  one-half  each. 


Problem  155 

Willis  and  Lewis  are  partners,  sharing  profits  and  losses  equally. 
The  partnership  is  dissolved  December  31,  1922,  at  which  time 
Willis's  capital  investment  is  $10,000,  and  Lewis's,  $2,500. 
The  total  liabilities  of  the  firm  are  $25,000,  which  includes 
$5,000  due  Willis  on  loan  account,  and  $2,500  due  Lewis  on  loan 
account.  The  assets  of  the  firm  are  disposed  of  for  $30,000  on 
May  1,  1923.  Prepare  accounts  closing  the  partnership  and 
showing  the  position  in  which  the  partners  stand  to  each  other. 
No  allowance  for  interest  is  required. 

Comments. — Set  up  a  balance  sheet,  and  determine  the  loss  due  to  liquida- 
tion. Th(!  distribution  of  the  loss  will  leave  Lewis  with  a  deficit.  The 
amount  due  outside  creditors  is  first  paid,  then  the  loan  of  Willis.  Willis 
would  probably  insist  that  sufficient  cash  be  withheld  from  amount  due 
Lewis  on  loan  to  cancel  the  deficit  in  his  capital  account. 

Show  solution  in  form  of  skeleton  journal  entries. 


CLASSIFIED  PROBLEMS  AXD   EXERCISES  361 

Group  C — ^Paitnership  Liquidation  by  Installments 

Problem  156 

Ames,  Beale,  and  Conley  have  suffered  heavy  losses.  They 
decide  to  liquidate  their  assets,  pay  off  their  liabihties,  and 
retire  from  business,  Ames  is  given  authority  to  close  up  the 
affairs  of  the  firm,  and  is  to  pay  off  the  partners  in  monthly 
installments  as  the  assets  are  converted  into  cash.  The  balances 
of  the  capital  accounts  on  June  30,  1921,  are  as  follows: 

Ames  $50  000 

Beale  30  000 

Conley  20  000 

Profits  and  losses  are  shared  in  proportion  to  capital.  After 
paying  expenses  and  liabilities,  the  following  amounts  are 
available  for  distribution: 

July  31,  1921  $24  000 

August  31,  1921  32  000 

September  30,  1921  35  000 

No  more  can  be  collected. 

Required. — Prepare  a  statement  showing  distribution  of  the 
various  installments  and  the  final  loss  in  liquidation. 

Comments. — When  profits  and  losses  are  shared  in  the  same  ratio  as 
capital,  the  distribution  of  assets  would  be  handled  in  the  same  manner 
as  a  distribution  of  profits.  In  this  problem,  therefore,  Ames,  Beale,  and 
Conley  would  be  paid  one-half,  three-tenths,  and  one-fifth,  respectively, 
of  the  $24,000  available  for  distribution  on  July  31,  an  entry  being  made  to 
charge  their  capital  accounts  and  credit  Cash.  Proceed  in  like  manner 
with  the  remaining  installments.  The  balance  of  the  capital  accounts 
after  payment  of  the  third  installment  will  represent  the  loss  which  should 
be  charged  off,  closing  all  accounts. 


362  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  157 

Davis,  Gilman,  and  Heath  each  has  a  credit  to  his  capital 
account  of  $60,000.  They  share  profits  as  follows:  Davis, 
60%;  Gilman,  30%;  and  Heath,  10%.  The  accounts  show  a 
trading  loss  of  $30,000,  leaving  assets  of  $150,000. 

The  partners  decide  to  liquidate  and  pay  off  the  partners  in 
installments  as  the  assets  are  converted  into  cash.  On  September 
1,  1921,  they  have  cash  to  the  amount  of  $60,000  to  distribute. 

(a)  How  should  the  first  installment  of  $60,000  be  divided? 

(b)  A  second  installment  of  $48,000  is  available  November  30, 
1921.     Show  distribution  of  same. 

(c)  A  final  installment  of  $36,000  is  ready  for  distribution 
January  1,  1922.     Show  distribution. 

Comments. — First  divide  the  trading  loss  of  $30,000  among  the  partners 
in  the  profit-sharing  ratio  given  above.  This  leaves  Davis  with  a  capital 
balance  of  $42,000;  Gilman,  $51,000;  and  Heath,  $57,000. 

(a)  When  profits  and  losses  are  not  shared  in  the  same  ratio  as  capital, 
as  illustrated  in  this  prol:)lem,  at  time  of  distribution  of  first  installment  it 
cannot  be  foreseen  as  to  what  the  balance  of  the  assets  will  realize.  To 
make  an  equitable  distribution  of  the  first  installment  the  remaining  assets 
should  be  treated  as  a  potential  loss  to  be  divided  in  profit-sharing  ratio. 
The  credit  balance  resulting  from  such  a  loss  would  be  the  basis  for  distri- 
bution of  the  first  installment.  The  potential  loss  in  this  case  amounts  to 
$90,000,  the  partners'  shares  being  $54,000,  $27,000,  and  $9,000,  respec- 
tively. This  leaves  the  capital  accounts  as  follows:  Davis,  deficit,  $12,000; 
Gilman,  balance,  $24,000;  Heath,  balance,  $48,000.  Davis's  deficit  will  be 
borne  by  Gilman  and  Heath  in  the  ratio  in  which  they  share  profits  as 
between  themselves;  namely,  Gilman,  three-fourths  ($9,000)  and  Heath,  one- 
fourth  ($3,000).  The  capital  accounts  now  stand:  Davis,  none;  Gilman, 
$15,000;  and  Heath,  $45,000.  Of  the  first  installment,  therefore,  Davis 
receives  nothing;  pilman,  $15,000;  and  Heath,  $45,000.  The  new  capital 
balances  now  are:    Davis,  $42,000;  Gilman,  $36,000;  Heath,  $12,000. 

(b)  The  capital  and  profits  still  being  shared  on  a  different  ratio,  the 
jirocedure  above  must  be  repeated,  $42,000  being  treated  as  the  potential 
loss  which,  when  distributed,  leaves  capital  balances  of  $16,800,  $23,400, 
and  $7,800,  respectively,  which  will  be  the  basis  of  distribution  of  the 
second  installment.  The  resulting  capital  balances  are  $25,200,  $12,600, 
and  $4,200,  respectively. 

(c)  The  capital  accounts  are  now  in  agreement  with  profit-sharing  ratio, 
and  the  third  installment  will  be  distributed  in  accordance  with  such  ratio 
as  illustrated  in  problem  156  above. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  363 

Problem  158 

Three  partners  contribute  capital  as  follows:  X,  $90,000; 
Y,  $45,000;  Z,  $15,000.  They  share  profits  in  the  proportion 
of  X,  50%,  Y,  30%,  and  Z,  20%.  X's  salary  is  $5,000,  Y's 
salary  is  $3,000,  Z's  salary  is  $2,000.  At  the  end  of  their 
fiscal  period  Z  dies.  The  books  are  closed  and  the  net  assets 
ascertained  to  be  $152,500.  X  and  Y  liquidate  the  firm's  affairs 
and  distribute  the  surplus  assets  quarterly  as  follows: 

First  quarter  $42  410  20 

Second  quarter  74  622  30 

Third  quarter  "  31  967  50     $149  000  00 

Prepare  a  statement  of  the  partners '  accounts,  showing  how 
the  distribution  of  assets  should  be  made  together  with  the 
apportionment  of  the  loss. 

(From  New  York  C.  P.  A.  Examination) 

Comments. — Credit  each  partner  with  his  salary,  which  makes  a  total 
capital  of  $160,000.  As  the  assets  amount  to  only  $152,500,  there  is  a 
loss  of  $7,500  to  be  distributed  to  the  partners  in  profit-sharing  ratio. 
Having. done  this,  proceed  as  in  problem  157. 


Problem  159 

A,  B  and  C  were  in  partnership,  A's  capital  being  $90,000, 
B's,  $50,000,  and  C's,  $50,000.  Their  agreement  is  to  share 
profits  in  the  following  ratio :  A,  60% ;  B,  15% ;  C,  25%.  During 
the  year  C  withdrew  $10,000.  Net  losses  on  the  business  during 
the  year  were  $15,000,  and  it  is  decided  to  close  out  the  business. 
It  is  uncertain  how  much  the  assets  will  ultimately  yield,  although 
none  of  them  is  known  to  be  bad.  The  partners  therefore 
mutually  agree  that  as  the  assets  are  liquidated,  distribution 
of  cash  on  hand  shall  be  made  monthly  in  such  a  manner  to 
avoid,  so  far  as  feasible,  the  possibility  of  paying  to  one  partner 
cash  which  he  might  later  have  to  repay  to  another.  Collections 
are  made  as  follows:  May,  $15,000;  June,  $13,000;  July, 
$52,000.     After  this  no  more  can  be  collected.     Show  the  part- 


364 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


ners'  accounts,  indicating  how  the  cash  is  distributed  in  each 
installment,  the  essential  feature  in  the  distribution  being  to 
observe  the  agreement  given  above. 

{From  American  Institute  Examination) 


Problem  160 

Burke,  Tracy,  King,  and  Rand  enter  into  partnership  with  a 
capital  of  $100,000.  Burke  invests  $40,000;  Tracy,  $30,000; 
King,  $20,000;  and  Rand,  $10,000.  They  are  to  share 
profits  or  losses  in  the  following  proportions:  Burke,  35%; 
Tracy,  28%;  King,  22%;  and  Rand,  15%. 

At  the  end  of  six  months  there  is  a  loss  of  $8,000,  and  mean- 
time the  partners  have  drawn  against  prospective  profits  as 
follows:  Burke,  $400;  Tracy,  $600;  King,  $600;  and  Rand, 
$400.  They  dissolve  partnership  and  agree  to  distribute  pro- 
ceeds of  firm  assets  monthly  as  realized. 

The  realization  and  liquidation  lasts  four  months,  and  the 
transactions  are  as  follows: 


Expenses  and 

Assets 

Liabilities 

losses  on 

realized 

liquidated 

realization 

First  month 

$  30  190  00 

$  7  900  00 

$     400  00 

Second  month 

50  300  00 

6  100  00 

750  00 

Third  month 

20  010  00 

3  800  00 

340  00 

Fourth  month 

9  500  00 

2  200  00 

110  00 

$110  000  00 

$20  000  00 

$1  600  00 

Prepare  partners'  accounts  showing  the  amount  payable 
monthly  to  each  one. 

(Adapted  from  New  York  Examination) 

Comments. — Distribute  'the  $8,000  loss  to  partners'  accounts  in  proper 
l)roportion.  Close  the  drawing  accounts  into  capital,  and  then  proceed 
as  in  previous  problems.  The  cash  to  be  distributed  each  month  is  found 
])y  deduction. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  365 

*  Problem  161 

A,  B,  and  C  were  partners  in  a  business  on  the  following  basis: 

Capital  Share  of 

Contributed  Profits  Salaries 

A  $45  000  00         50%  $6  000  00 

B  22  500  00         40%  4  000  00 

C  7  500  00         10%  2  400  00 

At  the  end  of  the  second  year's  business,  A  died.  The  part- 
ners' drawing  accounts  before  crediting  their  year's  salaries 
appeared  with  the  following  debit  balances:  A,  $2,572; 
B,  $1,218;  C,  $1,710. 

The  net  assets  of  the  business  after  finally  closing  the  books 
were  found  to  be  $74,780.  B  and  C  liquidate  the  affairs  of 
the  partnership.  Three  distributions  of  the  proceeds  of  liqui- 
dation were  made  as  follows:  $25,000;  $35,000;  $11,780. 

Required. — You  are  asked  to  prepare  a  tabulation  showing  the 
share  of  each  of  the  distributions  to  each  of  the  partners. 

{From  Wisconsin  C.  P.  A.  Examination) 


Problem  162 

A,  B,  C,  and  D  have  decided  to  dissolve  partnership.  To 
that  end,  they  have  liquidated  all  their  liabilities,  and  at  the 
date  of  the  first  division  of  cash  among  the  partners  the  conditions 
are  as  follows: 

Profit  and 
Partners  Capital       Loans       Loss  ratio 

A                                                                      $22  000  $  7  000  40% 

B                                                                         19  000  6  000  30% 

C                                                                      12  000  14  000  20% 

D                                                                      7  OOP  13  000  10% 

$60  OOP  $40  000  100% 

Cash  available  for  distribution  $  20  000 

Other  assets  not  yet  realized  (of  doubtful  value)  _80_000 

$100  000 


366  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

State  which  partners  should  participate  in  the  distribution 

of  the  $20,000;  how  much  cash  each  should  receive;  whether  the 

payments  should   be  applied  against  the   capital  accounts  or 

the  loan  accounts.     Explain  the  procedure  of  determining  the 

distribution.     Assume  that  none  of  the  partners  has  any  private 

property. 

(From  American  Institute  Examination) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  367 

Group  D — Miscellaneous  Partnership  Problems 

Problem  163 

A  invests  $50,000,  B,  $25,000,  and  C,  $10,000,  as  the  capital 
of  the  firm  of  A,  B,  and  C.  The  partnership  agreement  provides 
that  they  shall  share  profits  and  losses  equally.  At  the  end  of  a 
l)usiness  term  the  balance  sheet  shows  as  follows: 


Assets 

Liabilities 

Cash 

$         500 

Notes  Payable 

$  10  000 

Accounts  Receivable 

58  000 

Accounts  Payable 

75  000 

Merchandise  Inventory 

56  000 

Partner's  Capital,  A 

55  000 

Manufacturing  Plant 

41  000 

Partner's  Capital,  B 

27  500 

Various  Stocks  and 

Partner's  Capital,  C 

5  000 

Bonds  at  Market  Prices 

17  000 
$172  500 

$172  500 

The  business  is  sold  out,  the  assets  realizing  $140,000  gross. 
The  expenses  of  the  sale,  including  commissions,  were  $5,000. 
Show  final  accounts  of  the  partners. 

(From  New  York  C.  P.  A.  Examination) 

Comments. — The  balance  sheet  in  this  problem  does  not  necessarily 
represent  the  condition  of  the  firm  at  the  end  of  the  first  fiscal  period,  but 
rather  at  the  end  of  some  subsequent  period.  Assuming  that  A  has  made 
no  withdrawals,  his  account  at  the  date  of  balance  sheet  contains  $5,000 
profit.  The  investment  figures  may,  therefore,  be  ignored  in  solving  the 
problem.  Using  the  balance  sheet  figures  as  a  basis,  the  usual  process  of 
liquidation  will  be  followed  as  illustrated  in  previous  problems. 

The  term  "assets  realizing  $140,000  gross"  may  be  assumed  to  mean  that 
the  expenses  have  not  been  deducted  from  receipts  from  sale  of  assets. 

You  are  required  to  set  up  journal  entries  outlining  the  process  of  liqui- 
dation, and  prepare  a  statement  of  the  partners'  accounts,  showing  distri- 
bution of  loss  on  realization  and  cash. 


Book  Value 

Realized 

$10  000 

$3  000 

7  500 

2  500 

5  500 

4  500 

9  500 

6  500 

368  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  164 

A  and  B,  on  winding  up  their  partnership,  found  their  assets 
rcaUzed  as  follows: 

Factory  Premises 
Machinery 
Merchandise 
Accounts  Receivable 

Their  unpaid  liabilities  were  $10,500.  A's  capital  stood  at 
$15,000,  and  B's  capital  at  $7,000.  In  respect  to  profits  and 
losses,  they  were  equal  partners. 

Divide  the  proceeds  of  the  realization  between  them  after 

paying  off  the  liabilities,  and  debit  them  as  having  been  paid 

the  proportion  to  which  each  was  entitled,  and  show  what  amount 

would  be  payable  (if  any)  by  either  partner  to  the  other  to  settle 

the  accounts. 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — First  set  up  a  trial  balance  of  the  items  at  the  book  value 
to  be  sure  that  the  accounts  are  in  balance. 

An  account  known  as  Realization  and  Liquidation  may  be  opened. 
This  will  first  be  debited  with  all  the  assets  to  be  realized  at  the  book  value, 
and  credited  with  liabilities  to  be  liquidated.  It  will  then  be  charged 
with  liabilities  liquidated  and  credited  with  assets  realized  at  the  actual 
figure  realized,  the  contra  entry  in  each  case  being  Cash.  The  balance  of 
the  Realization  and  Liquidation  account  will  then  represent  the  amount  of 
loss  on  liquidation  which  will  be  charged  to  the  partners  in  proper  propor- 
tion, and  the  cash  on  hand  distributed  in  the  usual  manner. 


Problem  165 

According  to  the  terms  of  the  partnership  agreement,  profits 
and  losses  are  to  be  shared  as  follows:  Austin,  one-half;  and 
Beebe  and  Charlton,  one-fourth  each.  Interest  is  to  be  charged 
on  drawings  at  6%  and  credited  on  capital  at  5%  per  annum. 

The  capital  accounts  of  the  firm  for  the  year  ending  September 
31,  1921,  are  as  follows: 


CLASSIFIED  PROBLEMS  AND   EXERCISES  369 

Austin         Beebe     Charlton 

Balance,  September  30,  1920  $25  468     $16  245     $  6  852 

Additional  Investment,  June  30,  1921  4  000 

Balance,  September  30,  1921  $25  468     $16  245     $10  852 

The  drawing  accounts  of  the  partners  for  the  year  show  the 
following  results: 

Austin        Beebe     Charlton 

April  15,  1921  $1  500  $500 

July  5,  1921  1  OOP $350 

Balance,  September  30,  1921  $2  500  $500  $350 

You  are  asked  to  compute  the  interest  on  the  partners '  capital 
and  drawings  for  the  year,  and  make  journal  entries  for  the 
same,  after  which  you  will  distribute  the  final  net  profit  of  the 
firm  by  means  of  a  journal  entry.  The  net  profit,  exclusive  of 
interest,  is  $12,500. 

Comments. — In  computing  interest  in  this  problem,  find  the  time  by 
compound  subtraction.  For  instance,  the  time  from  April  15  to  Septem- 
ber 30  would  be  five  months  and  fifteen  days.  Use  common  interest. 
Allow  interest  on  capital  for  time  invested,  and  charge  interest  on  drawings 
from  date  of  withdrawal  to  the  end  of  the  year. 


Problem  166 

A,  B,  and  C  were  partners  carrying  on  business  with  a  capital 
December  31,  1900,  of  $60,000,  of  which  A's  share  was  $30,000; 
B's,  $20,000;  and  C's,  $10,000;  each  partner  was  entitled  to  5% 
interest  on  his  capital;  profits  or  losses  to  be  shared  as  follows: 
A,  7/12;  B,  1/4,  and  C,  1/6.  The  partners  agree,  July  1,  1901, 
to  dissolve.  After  all  partnership  assets  had  been  realized  and 
all  debts  paid,  except  $500  legal  expenses,  there  remained  a 
balance  in  bank  of  $48,750.  Final  settlement  takes  place  Decern-^ 
ber  31,  1901.  Cash  in  bank  bears  interest  at  2%  from  October  1, 
1901.  Show  a  statement  for  settlement  and  partners'  capital 
accounts  as  of  December  31,  1901. 

(From  New  York  C.  P.  A.  Examination) 


370  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — Find  loss  on  realization  ))y  deducting  balance  in  bank  from 
total  capital  plus  outstanding  liabilities.  While  the  agreement  to  dissolve 
the  partnership  was  made  on  July  1,  the  capital  draws  interest  until  Decem- 
ber 31,  as  the  capital  was  tied  up  until  that  date.  Figure  interest  on  bank 
balance  by  ordinary  method,  and  for  exact  days.  Assume  that  the  legal 
expenses  are  not  paid  until  date  of  final  settlement,  December  31,  1901. 
In  addition  to  the  statement  of  partner's  capital  accounts  called  for  in  the 
problem,  set  up  journal  entries  covering  adjustments  necessary  to  record 
the  interest  and  effect  a  final  distribution  of  cash. 


Problem  167 

A,  B,  and  C  engage  in  business,  A  contributing  $10,000  and 
B  $5,000,  while  C,  in  lieu  of  any  capital  contribution,  agrees  to 
undertake  the  active  management  at  a  salary  of  $3,000  per  year, 
to  be  paid  monthly. 

After  allowing  5%  interest  on  capital,  they  are  to  divide  the 
net  result  in  the  proportions  of  5,  3,  and  2,  respectively. 

At  the  end  of  eighteen  months  they  ascertain  the  position  to 
be  unfavorable  and  decide  to  wind  up.  The  assets  realize 
$12,500;  there  are  no  liabiHties  except  for  capital  and  interest 
thereon  and  one  month's  salary  due  C. 

Make  up  the  partners'  accounts,  showing  the  amount  to  be 
received  by  each. 

(From  Massachusetts  C.  P.  A.  Examination) 


Problem  168 


A  and  B  form  a  partnership,  A  investing  $30,000  and  B, 
$50,000.  They  agree  to  share  expenses  and  profits  and  losses 
equally.  They  further  agree  to  and  do  leave  their  original  in- 
vestments intact.     At  the  end  of  the  first  year  the  profits  from  the 


CLASSIFIED  PROBLEMS  AND  EXERCISES  371 

operations  of  the  business  amount  to  $30,000,  against  which  A 
has  drawn  in  twelve  equal  monthly  installments  on  the  last  day 
of  each  month  an  aggregate  amount  of  $9,000;  B  has  drawn 
against  his  profits  on  the  last  day  of  each  quarter  the  sum  of 
$2,500. 

Prepare  journal  entries  adjusting  interest  at  5%  per  annum 
between  the  partners  in  respect  to  both  their  investment  and 
drawing  accounts,  and  render  statements  showing  the  amount 
each  partner  has  in  the  business  at  the  end  of  the  year. 

(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — Attention  is  called  to  the  fact  that  drawings  of  $750  per 
month  during  the  year  on  the  last  day  of  each  month  is  equivalent  to  an 
interest  charge  on  $750  for  sixty-six  months  at  5%.  In  Uke  manner,  draw- 
ings of  $2,500  on  last  day  of  each  quarter  is  equivalent  to  an  interest  charge 
on  $2,500  for  eighteen  months  at  5%. 


Problem  169 

A  and  B,  partners,  finding  themselves  in  want  of  further 
capital  in  their  business,  and  both  being  possessed  of  real  prop- 
erty, A  deposited  deeds  with  the  bankers  of  the  firm  as  security 
for  a  loan  of  $2,000  to  the  firm.  B  arranged  on  some  of  his 
own  property  a  mortgage  for  $1,500  with  a  private  friend  and 
paid  the  proceeds  into  the  firm's  bank  account.  The  bankers 
were  eventually  obliged  to  realize  the  security  held  by  them  which 
produced,  after  payment  of  all  expenses,  the  sum  of  $2,850. 

Prepare  entries  recording  these  transactions  in  the  firm's  books. 
(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — Note  that  A  merely  deposits  personal  collateral  to  secure  a 
firm  loan,  while  B  raises  money  on  his  private  property  and  advances  same 
to  the  firm  in  the  nature  of  a  loan.  When  security  in  both  cases  is  realized 
by  the  bank,  it  amounts  to  a  transfer  of  the  firm's  obligation  to  the  bank 
to  A. 


372  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Group  E — Partnerships — Theory  Questions 
T-126 

On  buying  an  interest  in  a  business,  what  entries  should  be 
made  in  the  books  of  the  business — 

(a)  When  a  direct  sale  is  made  of  an  interest,  the  money  not 
to  be  used  in  the  business? 

(b)  When  the  money  paid  for  the  interest  in  the  business  is 

to  be  used  in  the  business? 

{Michigan  C.  P.  A.) 


T.127 

(a)  If  the  partners '  capital  accounts  show  capital  investments 
to  be  unequal,  profits  being  shared  equally,  which  partner  loses, 
with  no  allowance  for  interest  on  capital? 

(b)  If  the  capital  investments  of  the  partners  are  equal  and 
profits  are  shared  unequally,  which  partner  loses  if  interest  is  not 
allowed  on  capital  invested? 

(c)  Under  what  conditions  would  neither  partner  lose  if 
interest  were  not  figured  on  investments? 


T-128 

Fiske  and  Miller  share  profits  equally.  Interest  is  to  be 
allowed  on  capital  at  the  rate  of  5%  per  annum.  Fiske  invests 
$20,000  and  Brown  $25,000.  During  the  fiscal  year  ended 
September  30,  1922,  the  firm  suffers  a  loss  of  $2,000.  What 
entries  should  be  made  under  these  circumstances? 


T-129 

Is  there  any  difference  in  the  rights  of  firm  creditors  as  com- 
pared with  those  of  the  creditors  of  the  separate  partners? 
Explain. 

(C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND   EXERCISES  373 

T-130 

(a)  Is  a  surviving  partner  entitled  to  compensation  for  winding 
up  the  affairs  of  the  firm? 

(b)  In  absence  of  agreement  may  a  partner  claim  compensation 
for  managing  the  office  of  the  firm? 


T-131 

On  dissolution,  through  death,  of  a  partnership,  is  the  sur- 
viving partner,  in  the  absence  of  an  express  agreement,  entitled 
to  continue  the  business,  or  must  he  account  for  the  good-will 
of  the  business  to  the  representatives  of  the  deceased? 

(C.  P.  A.) 


T-132 

(a)  A's  Current,  Loan,  and  Salary  accounts  all  show  credit 
balances.     How  would  these  items  appear  on  the  balance  sheet? 

(b)  Under  what   conditions   would  you  recommend  that  a 
Salary  account  be  kept  with  a  partner? 


T-133 

A  firm  having  decided  to  liquidate  and  close  out  its  affairs, 
has  converted  all  its  assets  into  cash  and  has  paid  its  outside 
creditors.  There  are  loans  to  the  firm  by  partners  in  addition 
to  their  capital  investment.  Assuming  that  profits  are  shared 
in  a  different  ratio  from  capital,  and  there  is  insufficient  cash  to 
pay  capital  in  full,  how  should  the  assets  be  distributed  ? 


374  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-134 

A  partnership  is  dissolved  as  at  January  1,  both  partners 
being  in  debt  to  the  firm.  Subsequently  the  assets  are  sold  at 
less  than  the  book  value,  and  the  liabilities  are  partly  liquidated. 
The  partners  pay  their  indebtness  as  of  January  1.  How 
must  the  liquidating  loss  be  adjusted  as  between  the  partners? 
Why? 

{Kentucky  C,  P.  A.) 


T-135 

In  an  equal  partnership  with  three  partners,  one  was  unable 
to  meet  his  share  of  the  investment  with  cash  and  gave  his  note 
drawing  interest  for  part.  When  he  paid  the  interest,  the  book- 
keeper credited  each  of  the  other  partners  for  one-half  of  the 
same.  He  objected  and  the  matter  is  referred  to  you  at  the 
time  of  audit.  He  claims  that  it  should  have  been  credited  to 
the  Interest  and  Discount  account  and  thus  have  been  divided 
between  all  three.     Write  your  decision  and  reasons  therefore. 

(Michigan  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  375 

Bibliography 

Partnership  Accounting 

Cole,  William  Morse.     Accounts:  Their  Construction  and  Interpreta- 
tion.    Boston  and  New  York.     Pages  342-346. 
EsQUERRE,  Paui.-Joseph.     The  AppHed  Theory  of  Accounts.     New  York, 

1916.  Chap.  I. 

Greeley,  Harold  Dudley.  Theory  of  Accounts.  Vol.  i,  Business  Ac- 
counting.    New  York,  1920.     Chaps,  xxxi-xxxii. 

Greendlinger,  Leo.  Accounting  Practice.  New  York,  1914.  Chaps, 
xv-xvi. 

Hatfield,  Henry  Rand.     Modern  Accounting.     New  York,  1919.     Chap. 

XVII. 

Kester,  Roy  B.     Accounting  Theory  and  Practice.     Vol.  i.  New  York, 

1917,  Chaps,  xxxiii-xxxiv.     Vol.  ii,  New  York,  1920,  Chap.  xxxv. 
Klein,  Joseph  J.     Elements  of  Accounting.     New  York,  1915.     Chap.  v. 
Lisle,  George.     Accounting  in  Theory  and  Practice.     London,  1909. 
Madden,  John  T.     Accounting  Practice  and  Auditing.     New  York,  1917. 

Chaps,  iii-vi. 
Rittenhouse,  Charles  F.,  and  Clapp,  Philip  F.      Accounting  Theory 
and  Practice,  Unit  ii.     New  York,  1919.     Chaps,  i  and  ii. 


SECTION  V 

CONSIGNMENTS,  BRANCHES  AND  SELLING  AGENCIES 

Group  A — Consignments  and  Joint  Ventures 

Problem  170 

A  ships  to  B  on  consignment,  under  date  of  April  4,  merchan- 
dise to  the  value  of  $1,500,  paying  $15  cartage  and  $6  insurance. 

B  receives  the  consignment  April  20,  paying  freight,  $70,  and 
cartage,  $12.  He  subsequently  disposes  of  the  merchandise 
by  sales  as  follows:  April  30,  $400;  May  30,  $800;  June  30, 
$600,  on  which  latter  he  pays  storage  charges,  $30.  He  charges 
commissions  on  sales  5%,  credits  net  interest  at  6%,  and  transmits 
account  sales  with  remittance  of  net  proceeds  to  A,  who  receives 
them  July  10. 

Required. — Prepare  Consigned  Goods  account  as  appearing  on 
A's  ledger  and  Consignments  In  account  as  appearing  on  B's 
ledger. 

Comments. — This  problem  calls  for  Consigned  Goods  account  only  on  the 
books  of  consignor.  The  detailed  accounts  with  charges  and  sales  of  con- 
signed goods  may,  therefore,  be  omitted.  Charge  Consigned  Goods  account 
with  cost  of  goods  consigned  and  all  charges  prepaid,  and  credit  this  account 
with  proceeds  of  account  sales  rendered  by  consignee.  This  is  the  simplest 
method  of  handling  consignments  accounts  on  consignor's  books.  The 
objection  to  this  method  is  that  details  of  the  transaction  are  not  spread 
upon  the  books,  and  appear  only  in  the  account  sales  which  is  placed  on 
file. 

On  the  consignee's  books,  the  account  Consignments  In  is  charged  with 
expenses  of  handling  the  goods,  such  as  storage,  insurance,  freight,  etc., 
and  with  commission  charged  and  with  any  advances.  This  account  is 
credited  with  sales  of  consigned  goods  and  with  interest  allowed.  The 
balance  represents  the  net  proceeds  of  consignment  due  the  consignor. 
This  amount  should  be  remitted  in  cash  or  by  note,  or  transferred  to  credit 
of  consignor's  personal  account. 


377 


378  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  171 

Douglass  &  Company,  of  Cleveland,  on  September  1,  1921, 
shipped  to  Lloyd  Brothers,  Boston,  on  a  5%  commission  basis, 
goods  to  the  value  of  $8,500,  and  prepaid  freight  amounting  to 
$400.  The  goods  were  received  by  Lloyd  Brothers  on  September 
20.  They  were  found  to  be  damaged  in  transit  to  the  extent 
of  $1,500,  certificate  of  which  is  duly  forwarded  to  the  consignor 
by  the  consignee.  October  1,  Douglass  &  Company  draw  at 
sight  on  Lloyd  Brothers  on  account  of  the  shipment  to  the 
amount  of  $2,500.  The  draft  is  paid  by  the  consignee  upon 
presentation.  October  10,  an  account  is  rendered  for  sales  to 
date  amounting  to  $5,000  and  a  check  remitted  for  proceeds. 
The  balance  of  sales  amount  to  $7,000.  The  charges  exclusive 
of  commission  amount  to  $700.  A  final  account  is  rendered 
November  1.     Interest  is  not  considered. 

Required. — Entries  in  journal  form  covering  the  above  trans- 
actions on  the  books  of  the  consignor  so  as  to  show  details  of 
transactions  and  the  profit  on  the  consignment. 

Comments. — In  addition  to  the  account  with  Consigned  Goods,  accounts 
will  be  set  up  with  Commission,  Charges,  Sales  of  Consigned  Goods,  Con- 
signees, etc.  To  show  profit  on  the  consignment,  the  various  charges, 
commission,  and  cost  of  goods  will  be  closed  into  the  Sales  account. 


Problem  172 

Sharp  &  Watson,  Boston,  received  merchandise  from  Lane 
&  Son,  Philadelphia,  for  sale  on  their  account  and  risk.  The 
consignees  paid  freight,  $73.50;  cooperage,  $17.  They  accepted 
draft  of  consignor  on  account  for  $1,000.  An  allowance  for 
damaged  goods  returned  was  made  by  consignee,  $72.  A  short- 
ago  on  sales  was  adjusted  for  $8.75.  Total  sales,  $2,625.  Con- 
signees render  an  account:  insurance,  3/4%;  storage,  $26;  com- 
mission, 5%;  net  proceeds  placed  to  credit  of  consignor. 


CLASSIFIED  PROBLEMS  AND   EXERCISES  379 

Required. — Entries  in  journal  form  covering  the  above  trans 
actions  as  they  would  appear  on  the  books  of  the  consignee. 

Comments. — In  addition  to  consignments  In  account,  set  up  accoimts 
for  the  various  charges. 


Problem  173 

June  1. — Shipped  the  Bronx  Commission  Company,  New 
York,  to  be  sold  on  consignment,  goods  costing  $1,500. 

June  2. — Paid  Armstrong  Transfer  Company  $68.75  for 
drayage  and  loading  the  goods  on  the  car. 

June  10. — The  consignee  accepted  a  10-day  draft  for  $1,000 
on  account  of  consignment.  Paid  $2  for  telegram  on  account 
of  draft. 

June  15. — The  consignee  remits  check  for  $500  on  account  of 
shipment. 

June  20. — Consignee  transfers  to  us  note  received  in  part 
payment  of  goods  sold  amounting  to  $125. 

June  30. — Consignee  renders  an  account  sales  and  remits 
check  for  $426.50  for  balance  due. 

Required: 

(a)  Entries  in  journal  form  covering  the  above  data  on  the 
books  of  the  consignor.  Use  memorandum  accounts 
with  consignee  and  do  not  show  separately  profit  or 
loss  from  consignments 

(b)  Account  sales  as  rendered  by  consignee. 

Comments. — Set  up  memorandum  accounts  with  Consignee  and  Con- 
signed Goods  for  cost  of  goods  shipped.  Do  not  take  this  amount  from 
Inventory  or  Purchases  account.  Open  an  account  for  Charges,  Commis- 
sion, etc.,  as  indicated  in  previous  problems.  Credit  consignee  for  ad- 
vances. When  account  sales  is  received,  record  sales  and  charges,  credit- 
ing consignee  for  latter  and  charging  for  former.  Adjust  the  memorandum 
accounts  and  close  them  out.  The  result  will  be  to  show  details  of  charges 
and  sales  while  cost  of  the  sales  and  profit  on  consignment  is  not  shown 
separately. 


380  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  174 

Jan.  1. — Received  from  Merville  &  Company,  Cleveland, 
10,000  baskets  of  grapes  invoiced  at  15  i  per  basket,  to  be  sold 
on  consignment. 

Jan.  2. — Paid  Boston  &  Albany  Railroad  $227.50  freight  on 
consignment. 

Jan.  3. — Sold  5,000  baskets  grapes  at  20^. 

Jan.  5. — Sold  on  account  2,000  baskets  grapes  at  22  ^ 

Jan.  10. — Paid  consignor's  sight  draft  for  $500. 

Jan.  12.—  Sold  balance  of  consignment  at  18^  per  basket. 

Jan.  15. — Rendered  an  account  to  consignor:  storage,  3/4^  per 
basket;  drayage,  1^  per  basket;  insurance,  $15;  commission, 
5%;  net  proceeds  placed  to  credit  of  consignor. 

Required: 

(a)  Entries  in  journal  form  to  record  above  data  on  the 
books  of  consignee.  Use  memorandum  accounts  to 
record  receipt  of  goods  at  invoice  price 

(b)  Account  sales  rendered  to  consignor. 

Comments. — Charge  Consigned  Goods  and  credit  consignor  for  invoice 
value  of  goods  received.  Set  up  the  usual  accounts  with  Charges,  Com- 
missions, etc.  When  goods  are  all  disposed  of  and  account  sales  is  ren- 
dered to  consignor,  adjust  and  close  out  the  memorandum  accounts.  The 
consignor's  personal  account  is  then  credited  with  balance  due  as  shown 
by  account  sales. 


Problem  175 

Two  merchants,  C.  F.  Munton  and  W.  A.  Spencer,  agree  to 
share  equally  in  a  joint  adventure  in  trade  to  the  West  Indies. 

On  March  1st,  1917,  they  charter  a  small  vessel  and  purchase 
and  ship  materials  which  cost  them  $197,  for  which  Munton 
gives  his  check. 

This  cargo  they  consign  to  John  Smith,  their  agent  at  Havana, 
which  he  disposes  of,  and  in  return  ships  on  board  the  same  vessel 
4,000  cases  of  Commodity  A,  and  100  cases  of  Commodity  B; 


CLASSIFIED  PROBLEMS  AND   EXERCISES  381 

and  he  draws  on  Munton  at  sight  for  $125,  this  being  the 
amount  of  the  agent's  charges  and  disbursements  over  and  above 
the  net  proceeds  of  the  cargo  consigned  to  him.  Munton  accepts 
and  pays  the  bill.  On  April  1st  the  vessel  arrives,  whereupon 
Munton  pays  sundry  charges  of  $337.50.  Spencer  pays  the 
freight,  amounting  to  $493.  On  April  4th  Munton  sells 
1,000  cases  of  Commodity  A  to  Henry  Chamberlain  for  $239.58, 
and  collects  $150  and  on  April  10th  Spencer  collects  the  rest. 

About  this  time,  Mr.  Spencer  happens  to  have  occasion  for 
1,400  cases  of  Commodity  A,  which  he  takes  on  April  14th, 
and  with  Munton's  consent  values  it  at  $291.66.  He  also  takes 
10  cases  of  Commodity  B,  valued  at  $47.50.  Munton  sells  the 
other  1,600  cases  of  Commodity  A  on  April  20th  to  John  Walters 
for  $383.33,  and  a  month  after  accepts  $382.50  in  full  payment. 

Mr.  Munton  next  sells  on  April  25th  the  other  90  cases  of 
Commodity  B  in  barter  for  30  cases  of  Commodity  C,  which 
he  and  Spencer  divide  equally  between  them. 

The  goods  being  thus  disposed  of,  Munton  presents  his  bill 
of  charges,  which  comes  to  $22.66,  and  desires  to  have  accounts 
stated  between  Mr.  Spencer  and  him. 

Required. — Set  up  the  ledger  accounts  of  the  joint  adventure, 
recording  the  foregoing  transactions  under  the  following  accounts : 
Joint  Adventure,  C.  F.  Munton,  W.  A.  Spencer,  Henry  Chamber- 
lain, John  Walters. 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — Charge  the  Joint  Adventure  account  with  all  costs  and 
expenses  in  connection  with  the  venture  and  credit  same  with  all  returns. 
The  balance  of  the  account  will  then  represent  the  profit  or  loss  from  the 
venture.     The  first  entry,  therefore,  from  the  above  data  is  as  follows: 

Joint  Adventure  account  $197  00 

C.  F.  Munton  $197  00 


382  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  176 

A.  B.  &  Co.  agree  with  C.  D.  &  Co.  that  the  latter  shall  ship 
on  consignment  to  Honolulu  on  joint  account  20  cases  of  Com- 
modity X,  the  invoice  price  of  which  is  $2,100,  less  2/4  per 
cent.  A.  B.  &  Co.  pay  the  packing  charges,  $25;  also  freight, 
insurance  and  other  charges,  $90,  and  they  draw  on  their  cor- 
respondents in  Honolulu  in  advance  for  $1,600  at  90  days,  which 
is  discounted  at  a  cost  of  $20,  and  the  proceeds  handed  to  C.  D.  & 
Co.  as  part  payment.  These  transactions  may  be  dated  March 
1st,  1909.  On  the  30th  of  November,  1909,  A.  B.  &  Co.  receive 
the  account  sales  and  net  proceeds,  $418,  and  they  then  pay 
C.  D.  &  Co.  the  balance  due  to  them. 

Required. — Prepare  a  Joint  Consignment  Account  charging  in- 
terest on  the  amount  lying  out  at  5  per  cent  per  annum  for 
eight  months,  closing  it  by  dividing  the  loss;  also  an  account 
to  be  rendered  by  A.  B.  &  Co.  to  C.  D.  &  Co.  closed  by  payment 
of  the  balance,  and  prove  that  the  losses  borne  by  each  are  equal. 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — Open  accounts  with  Joint  Consignment,  A.  B.  &  Com- 
pany, and  C.  D.  &  Company,  and  proceed  as  in  the  previous  problem. 

"Charging  interest  on  the  amount  lying  out"  is  construed  to  mean  that 
each  company  is  to  be  credited,  and  the  Joint  Consignment  account  charged 
with  interest  for  eight  months  at  5%  on  the  balance  to  the  credit  of  each 
company  after  entering  transactions  as  of  March  1,  1909. 

After  charging  A.  B.  &  Company  and  crediting  the  Joint  Consignment 
for  the  net  proceeds,  $418,  the  balance  of  the  Joint  account  represents  the 
loss  which  is  to  be  divided  equally  between  A.  B.  &  Company  and  C.  D. 
&  Company. 


Problem  177 

For  the  purpose  of  making  a  joint  speculation  A  contributes 
$3,000,  B,  $2,000,  and  C,  $1,000,  and  they  agree  to  share  the 
profits  or  losses  in  proportion  to  the  amounts  contributed. 
October  15,  1900,.  A  deposited  the  $6,000  with  his  broker,  giving 
instructions  to  buy  300  shares  New  York  Central  and  300  shares 
Chicago,  Burlington,  &  Quincy.  The  order  was  executed 
October  16,  1900,  N.  Y.  C.  at  130^  and  C.  B.  &  Q.  at  127. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  383 

« 

April  10,  1901,  under  instructions  from  A,  N.  Y,  C.  was  sold 
at  151K  and  C.  B.  &  Q.  at  191/^,  a  check  being  received  from 
the  broker  to  close  the  account.  How  much  does  A  owe  B  and  C 
for  their  interests  in  the  deal,  calculating  interest  at  6%  (365 
days  to  the  year),  commission  at  /^%,  and  revenue  tax  of  $2 
for  each  100  shares? 

Required. — Set  up  ledger  account  with  Brokers  and  prepare 
statement  showing  final  settlement  between  A,  B,  and  C. 

(From  New  York  C.  P.  A.  Examination) 

Comments. — Charge  Broker  account  with  margin,  sales  of  stock,  and 
interest  on  margin.  Credit  this  account  with  purchases  of  stock,  com- 
missions, tax,  and  interest  on  purchase  price  of  stock  plus  commission. 
The  balance  represents  amount  due  A,  which  after  deducting  the  margin  is 
the  profit  to  be  divided  among  A,  B,  and  C. 


Problem  178 

A,  B,  and  C  agree  to  purchase  and  sell  coffee  for  their  joint 
account.  They  purchase  3,000  bags  of  coffee  for  $58,500 
and  one  month  thereafter  sell  the  same  at  16^  per  pound  (say 
130  pounds  to  the  bag.)  The  warehouse  charges,  labor,  cartage, 
weighing,  brokerage,  etc.,  amount  to 

A  contributes  cash 

B  contributes  note  at  4  months 

Discount  on  same  at  6% 

C  contributes  cash 

C  contributes  note  at  3  months 

Discount  on  same  at  6% 

It  was  arranged  that  each  should  contribute  equally  to  the 
requisite  purchase  money,  in  default  of  which,  interest  at  6%  per 
annum  for  the  month  covering  the  transaction  was  to  be  cal- 
culated between  them,  to  equahze  their  respective  contributions. 

Required. — Prepare  an  account  of  the  venture;  also  separate 
accounts  of  A,B,and  C,  showing  the  share  of  each  in  the  final 
net  proceeds. 

(From  C.  P.  A.  Examinaiion) 


$19  000  00 
? 

$20 

000  00 
? 

$18  800  00 
$2  500  00 

?         ? 

? 

$59 

982  50 

384  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Comments. — In  solving  this  problem  a  Joint  Cash  account  as  well  as  a 
Joint  Merchandise  account  should  be  used,  and  in  addition  accounts  will 
be  kept  with  A,  B,  and  C.  Debit  Cash  and  credit  each  contributor  for 
his  cash  contribution  (assuming  that  the  notes  were  discounted  at  the 
bank).  Handle  the  Joint  Merchandise  account  in  the  usual  manner, 
charging  lor  costs  (at  which  time  Cash  is  credited)  and  crediting  for  returns 
(at  which  time  Cash  is  debited).  The  profit  on  the  venture  is  then  credited 
to  the  contributors.  Interest  on  the  contributions  is  adjusted  through  the 
personal  accounts  only,  after  which  each  is  given  the  balance  of  his  account 
in  cash,  which  closes  all  accounts. 


Problem  179 

Drew  &  Company  and  Land  &  Company  ship  merchandise  to 
South  America  on  joint  account.  Land  &  Company  gave 
Drew  &  Company  $1,200  in  cash  and  their  acceptances  at 
six  months  for  $3,000.  Drew  &  Company  were  to  provide 
balance  of  cash  required,  to  manage  the  venture  and  to  receive 
a  commission  of  2%  on  amount  of  invoice  for  merchandise. 
The  profits  are  to  be  divided  equally. 

Drew  &  Company  paid  Smith  &  Brown  for  merchandise 
$5,000  and  discounted  Land  &  Company's  acceptances  for 
$3,000  at  2%  discount.  Drew  &  Company  prepaid  freight 
$420,  insurance,  $60.  In  due  time  Drew  &  Company  received 
from  South  America  an  account  sales  for  merchandise  and  a 
draft  for  the  net  proceeds,  payable  in  London  for  $3,200,  out  of 
which  Drew  &  Company  paid  $3,000  to  retire  bills  for  that 
amount. 

Later  Drew  &  Company  received  a  draft  for  $3,100,  being 
balance  of  proceeds  of  sale  of  merchandise.  The  joint  account 
with  Land  &  Company  was  closed  and  a  check  for  the  balance 
due  them  was  paid  to  Land  &  Company. 

Required. — Prepare  a  statement  showing  details  of  the  joint 
account,  also  a  statement  of  Land  &  Company's  account. 

(From  Kentucky  C.  P.  A.  Examinaiion) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  385 

Group  B— Consignments  and  Joint  Ventures — Theory  Questions 

T-136 

Differentiate  between  Consignments,  Adventures,  and  Joint 
Accounts.  How  should  Consignments  Received  to  be  realized 
for  and  on  behalf  of  another,  be  best  treated?  How  should  the 
managing  partner  of  a  joint  venture  treat  the  same  in  his  books? 
Illustrate. 

(Michigan  C.  P.  A.) 


T-137 

(a)  How  should  a  trading  company,  acting  also  as  agent  for 
an  individual  trader,  show  on  its  balance  sheet  the  unsold  con- 
signed goods  of  the  principal? 

(b)  How  should  the  principal  show  the  goods  on  his  own 
balance  sheet''' 

(American  Institvie) 


T-138 

State  two  ways  of  treating  consignments  inward,  when  goods 
are  to  be  sold  subject  to  commission,  at  the  price  at  which  they 
are  consigned.  Give  the  arguments  for  and  against  each  method 
and  your  views  thereon. 

(New  York  C.  P.  A.) 


T-139 

In  auditing  the  accounts  of  an  engineering  corporation  you 
find  a  number  of  engines  have  been  shipped  to  dealers  on  con- 
signment, against  which  the  dealers  have  made  deposits  of  75 
per  cent  of  the  invoice  price.  The  engines  were  invoiced  out 
to  the  dealers  at  the  regular  contract  prices,  being  carried  in 
Accounts  Receivable,   the  deposits  referred  to  being  credited 


386  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

to  the  same  accounts.  In  drawing  up  the  balance  sheet,  how 
would  you  consider  these  items  should  be  stated,  and  upon  what 
basis  of  valuation? 

(Massachusetts  C.  P.  A.) 


T-140 

The  amount  of  outstanding  accounts  receivable  by  a  selling 
house  for  account  of  a  consignor,  whose  account  is  unguaranteed, 
is  $762,000;  the  selling  house  has  advanced  thereon,  to  the 
consignor,  $80,000.  The  consignor  shows,  in  his  balance  sheet: 
"Outstanding  Accounts  Receivable,  $682,000,"  as  embracing 
the  above.  State  (a)  your  opinion  of  the  propriety  thereof, 
and  if  you  would  treat  the  items  differently,  (b)  how  and  (c)  why. 

{Massachvsetts  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  387 

Group  C. — ^Branch  Houses  and  Selling  Agencies 

Problem  180 

The  trial  balance  of  Ashley  and  Bitzer,  Boston  Branch,  on 
September  30,  1921,  was  as  follows: 

Accounts  Receivable  %  5  000 

Cash  in  Bank  2  000 

Expenses  3  800 

Purchases  27  200 

Sales  .  $34  000 

Home  Office  4  000 

$38^000     $38  000 
Goods  on  hand,  $2,000. 

Required: 

(a)  Necessary  journal  entries  to  close  the  nominal  accounts 
on  the  branch  books 

(b)  Entries  in  the  home  office  to  make  the  books  agree. 

Comments. — (a)  Close  ledger  of  branch  in  the  usual  manner,  the  net 
profit  being  credited  to  Home  Office  account. 

(b)  Charge  Branch  Office  account  and  credit  Branch  Profit  and  Loss  for 
profit  as  shown  by  branch  books. 


Problem  181 

A  branch  office  business  was  started  the  first  of  the  year,  the 
head  office  advancing  $5,000  cash.  During  the  first  year 
merchandise  was  shipped  to  Branch,  invoiced  at  $75,000. 

An  auditor  checking  up  the  business  at  the  close  of  the  year 
finds  the  following: 

Merchandise  sales  were  $60,000,  with  selling  price  of  goods 
20%  advance  on  invoice. 

Proper  vouchers  were  on  file  duly  receipted  for  following  pay- 
ments : 

Rebates  and  allowances  on  damaged  goods  $  1  500  00 

Salaries  and  other  expenses  4  500  00 

Freights  *  2  500  00 


388  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

The  books  also  showed: 

Remittances  to  head  oflBce  $35  000  00 

Uncollected  accounts  15  000  00 

and  the  balance  of  the  sales  having  been  realized  in  cash,  less 
rebates  and  allowances  as  noted. 

The  cash  on  hand  and  inventory  of  unsold  goods,  together 
with  the  foregoing  records,  properly  account  for  everything. 

Required. — Prepare  statements  such  as  an  auditor  would  make 
in  reporting  to  the  head  office',  balancing  the  business  of  the 
branch  house. 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — Prepare  profit  and  loss  statement  for  the  branch,  setting 
it  up  in  the  customary  form.  All  the  data  for  this  statement  is  given 
in  the  problem  except  the  amount  of  the  inventory  of  goods  on  hand  at 
the  close  of  the  period,  which  is  found  by  deduction. 

The  balance  sheet  items  Cash  and  Accounts  Receivable  will  also  be 
found  by  deduction  from  information  furnished  in  problem.  The  balance 
sheet  will  be  quite  simple,  the  total  of  the  assets  representing  the  balance 
of  the  Main  Office  account  on  the  branch  books. 


Problem  182 

Harold  J.  Smith  &  Co.  place  you  in  charge  of  a  branch  store 
with  goods  valued  at  $2,150  and  cash  $75.  You  are  to  receive 
a  salary  of  $40  per  month,  and  10%  of  the  gross  profits.  During 
the  year  you  pay  store  expenses  of  $210.  The  goods  shipped 
from  main  store  during  the  year  amounted  to  $21,000,  and  j'our 
sales  are  $24,000.  At  the  end  of  the  year  your  books  showed 
accounts  receivable  $400,  and  merchandise  on  hand,  $2,000.  It 
is  decided  to  close  the  branch  at  the  end  of  the  year,  and  Smith 
takes  over  the  accounts  receivable  and  merchandise  at  book 
value. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  389 

Required: 

(a)  Branch  profit  and  loss  statement  for  the  year 

(b)  Cash  account  showing  balance  due  Smith  &  Co.  at  the 
end  of  the  year 

(c)  An  abstract  of  the  ledger  account  with  Smith  &  Com- 
pany. 

Comments. — In  preparing  the  Cash  account,  assume  that  salary  for  a 
year  has  been  paid  and  that  sales  were  converted  into  cash  with  the  excep- 
tion of  the  accounts  receivable,  $400. 


Problem  183 

The  condition  of  the  Atlantic  Co.  at  the  close  of  business, 
December  31,  1919,  is  reported  by  them  as  follows: 

Assets 

Real  Estate                                                                                       $  150  000  00 

Machinery  200  000  00 

Cash  24  500  40 

Accounts  Receivable  320  800  50 

Merchandise  375  480  70 

$1  070  781  60 

Liabilities 

Capital  Stock  $     500  000  00 

Mortgage  on  Real  Estate  100  000  00 

Accounts  Payable  67  000  00 

Notes  Pavable  100  000  00 

Surplus  200  000  00 

Profit  and  Loss  103  781  60 

$1  070  781  60 

The  Company  has  a  branch  to  which  it  sells  its  goods  at  20% 
over  inventory  prices  and  carries  this  account  together  with 
other  branch  assets  as  a  receivable. 

The  statement  of  the  branch  on  same  date  was: 


390 


ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Assets 


Fixtures 

Cash 

Accounts  Receivable 

Merchandise  at  Price  Billed  to  Branch 


Atlantic  Company 


Liabilities 


$  6  205  79 

1  107  55 

12  478  14 

5  241  95 

$25  033  43 


$25  033  43 


Required: 

(a)  What  was  the    inventory  value   of  the   branch  mer- 
chandise? 

(b)  Prepare   a   corrected   balance   sheet  of    the     Atlantic 
Company  set  up  in  proper  form. 

{From  Massachusetts  C.  P.  A.  Examination.) 

Comments. — The  merchandise  at  branch  is  carried  at  120%  of  cost. 
This  must  be  reduced  to  cost  and  added  to  merchandise  at  main  office. 

The  Accounts  Receivable  item  on  the  main  office  balance  sheet  includes 
the  value  of  Main  Office  account  as  shown  on  branch  books,  $25,033.43. 
Deduct  this  amount  and  distribute  the  branch  assets  to  the  proper  accounts. 


Problem  184 

A  manufacturing  concern  having  a  branch  in  another  town 
presents  the  following  trial  balances  on  January  1,  1912: 


Main 

Office 

Plant 

$125  500 

Capital  Stock 

$250  000 

Material    and    Supplies 

Notes  Payable 

30  000 

(inventory   Jan.    1, 

Accounts  Payable 

42  630 

1911) 

68  300 

Net  Sales 

480  300 

Purchases 

245  800 

Profit  and  Loss  (Jan.  1, 

Labor 

163  400 

1911) 

31  820 

General  Expense 

24  900 

Insurance — (1   yr.   to 

Jan.  1,  1912) 

3  400 

CLASSIFIED  PROBLEMS  AND  EXERCISES 


391 


Accounts  Receivable 


(worth  95%) 

$84  600 

Cash 

4  870 

Dividends  Paid 

20  000 

Branch 

93  980 

$834  750 

$834  750 

Branch 

Plant 

$  35  200 

Net  Sales 

$  97  620 

Material    and   Supplies 

Main  OflSce 

93  980 

(inventory  Jan.    1, 

1911) 

16  500 

Purchases 

62  450 

Labor 

40  610 

Insurance — (1  yr.   to 

Apr.  1,  1912) 

1  260 

General  Expense 

7  820 

Accounts  Receivable 

(worth  100%) 

24  600 

Cash 

3  160 
$191  600 

$191  600 

Inventories  of  material  and  supplies  on  January  1,  1912,  were: 
Main  office,  $45,300;  branch,  $28,400. 

No  inventories  of.  finished  goods,  as  same  were  sold  on  contract 
for  daily  shipments,  and  are  all  billed  up  on  closing. 

In  closing  on  January  1,  1911,  the  branch  charged  off  all 
insurance. 

General  Expense  includes  salaries,  office  expense,  taxes,  etc. 

Selling  Expense  has  been  deducted  from  the  sales. 

Required. — Construct  one  profit  and  loss  statement  and  closing 
balance  sheet  for  the  entire  concern,  omitting  estimate  for 
depreciation. 

(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — Prepare  consolidated  trial  balance,  eliminating  the  Branch 
and  Main  Office  accounts,  and  adjusting  Insurance  and  Accounts  Receiv- 
able. Dividends  Paid  should  be  eliminated  against  Profit  and  Loss,  Jan- 
uary 1,  1911. 


392  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  185 

The  Gordon  Manufacturing  Company  opened  a  branch  store 
on  July  1,  1920,  in  Boston,  and  installed  X  as  manager.  From 
that  date  to  June  30,  1921,  the  following  transactions  took  place. 

(1)  Merchandise  to  the  value  of  $12,380,75  was  shipped  during 
the  year  direct  from  the  warehouse  of  the  main  office. 

(2)  Freight  charges  on  the  above  shipments  were  prepaid  by 
the  main  office  to  the  amount  of  $1,091.30. 

(3)  Uncollected  customers'  accounts  at  June  30,  1921, 
amounted  to  $4,210.25. 

(4)  Salaries  and  other  expenses  unpaid,  June  30,  1921, 
amounted  to  $602.10. 

(5)  Merchandise  to  the  value  of  $8,520.60  was  bought  by  and 
paid  for  direct  by  the  branch. 

(6)  The  total  sales  of  all  kinds  during  the  year  ended  June 
30,  1921,  amounted  to  $35,118.75. 

(7)  Branch  expenses  paid  (including  salaries  of  salesmen  and 
office  clerks,  rent,  light,  advertising,  etc.,  but  exclusive  of  the 
unpaid  items  above  referred  to),  $7,268.50. 

(8)  Charge  of  $725  rendered  by  the  main  office  in  respect  to 
the  proportion  of  management  salaries  and  expenses  chargeable 
to  the  branch  office. 

(9)  Inventory  of  materials  on  hand  June  30,  1921,  $1,210.25. 
A  separate  set  of  books  was  kept  at  the  branch. 

Required: 

(a)  The  necessary  entries  to  record  the  foregoing  transac- 
tions on  both  the  branch  and  main  office  books 

(b)  The  necessary  closing  journal  entries  for  branch  books 

(c)  The  necessary  entries  to  take  up  the  profit  or  loss  on 
the  main  office  books 

(d)  The  necessary  statements  to  show  the  profits  or  losses 
from  trading 

(e)  A  summary  of  the  transactions  between  the  branch  and 
the  main  office  as  shown  by  the  Branch  account  on  the 
books  of  the  main  office. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  393 

Problem  186 

A  Boston  concern  is  about  to  open  a  branch  selling  office  in 
Detroit.  Full  stock  of  goods  will  be  carried  in  this  office,  the 
goods  to  be  billed  to  the  Detroit  branch  at  selling  price,  freight 
on  shipments  to  Detroit  being  paid  by  the  Boston  office.  All 
sales  made  by  the  Detroit  office  are  billed  from  Detroit,  a  copy 
of  the  bill  being  sent  to  the  Boston  office. 

Once  a  month  a  summary  of  sales  billed  is  also  submitted  to 
the  Boston  office  for  checking  purposes.  All  bills  are  payable  at 
the  Boston  office. 

All  the  expenses  of  the  branch  are  paid  from  the  main  office 
with  the  exception  of  petty  expenses,  for  which  a  Petty  Cash 
Fund  is  provided. 

If  any  sales  are  made  by  the  Boston  branch  outside  of  a  given 
territory,  commission  must  be  allowed  to  the  dealer  in  whose 
territory  such  sales  are  made. 

Submit  a  list  of  the  accounts  which  you  would  open  on  the 
books  of  the  main  office  to  show  a  proper  accounting  for  the 
business  done  at  the  branch. 

Define  the  functions  of  such  accounts  and  state  what  special 
books,  if  any,  you  would  recommend  for  taking  care  of  the 
business. 


Problem  187 

The  Marion  Wholesale  Provision  Company  has  a  number  of 
retail  branches  which  are  supplied  with  goods  from  the  wholesale 
store,  but  they  keep  their  own  sales  ledgers,  receive  cash  against 
ledger  accounts,  and  pay  in  the  whole  of  their  cash  every  day  to 
head  office.  They  send  out  their  own  statements  of  account 
monthly.  All  wages  and  branch  expenses  are  drawn  by  check 
from  head  office  on  the  imprest  system. 

The  following  particulars  are  supplied  by  the  branches: 


394  ACCOUNTING  PROBLEMS:  INTERMEDIATE 


Six  months'  sales  to  June  30,  1920 

Returns  from  customers 

Allowances  to  customers 

Cash  received  on  ledger  accoimts 

Cash  sales 

Stock  at  commencement 

Stock  at  end 

Debtors,  January  1,  1920 

Debtors,  June  30,  1920 

Bad  debts 

Goods  received  from  wholesale,  less  returns 

Rent  and  taxes  paid 

Wages  and  sundry  expenses 

Required: 

(a)  Compile    each    branch    ledger 
office  books 

(b)  Prepare  a  profit  and  loss  statement  by  branches  and 
in  total. 


A 

B 

C 

$13  500 

$13 

000 

$11  500 

100 

120 

80 

25 

20 

30 

11  900 

12 

000 

10  000 

7  100 

6 

250 

6  500 

2  700 

2 

400 

2  500 

3  100 

2 

900 

2  400 

6  250 

6 

000 

5  500 

7  650 

6 

810 

6  890 

75 

50 

10  600 

10 

300 

10  000 

400 

350 

375 

1  900 

1 

780 

1  750 

account  in  the  head 

Problem  188 

A  commission  house,  composed  of  three  partners,  is  selling 
agent  for  sundry  consignors  whose  accounts  are  unguaranteed. 
The  rate  of  commission  is  3%  of  the  net  sales.  The  fiscal  terms 
end  June  30  and  December  31.  The  partners'  capital  accounts 
are  to  be  credited  with  interest  at  6%  per  annum  and  with  the 
net  earnings  which  are  to  be  apportioned  as  follows: 

J.  Doe,  60%;  R.  Roe,  30%;  J.  Smith,  $10%.  No  interest  is 
to  be  computed  on  J.  Doe's  drawing  account;  that  account  is  to 
be  credited  with  1%  of  the  net  sales.  Following  is  the  trial 
balance,  December  31,  1920: 

Cash  $  16  800            Sundry  Creditors              $         100 

Advances  to  Sundry  Sundry  Consignors' Sales 

C'onsignors,    Account  Accounts                           235  600 

of  Sales  105  700              J.    Doe,    Capital   Acct. 

Accounts  Heceivalile,  for  (June  30,  1920)                  100  00 

Account     of     Sundry  R.    Roe,    Capital  Acct. 

Consignors  235  GOO                 (June  30,  1920)                    90  00 


CLASSIFIED  PROBLEMS  AND  EXERCISES  395 

J.  Doe,  Drawing  Acct.          $5  800  J.  Smith,  Capital  Acct. 
Salaries                                      3  400  (June  30,  1920)                  $4  000 
Rents                                             700  Commissions                          18  000 
Traveling                                      600  Interest  Received  from 
Teaming                                        200  Consignors,  on  Ad- 
Miscellaneous  Expenses             800  vances    Account     of 

Sales    (to     Dec.     31, 

1920)                                      2  900 

$369  600  $369  600 

The  net  sales,  during  the  six  months,  were  $600,000. 

Required: 

(a)  Profit  and  loss  statement  for  the  six  months  ended 
December  31,  1920,  showing  gross  profit,  operating 
expenses,  interest  credited  to  partners,  and  distribution 
of  net  earnings 

(b)  Balance  sheet,  December  31,  1920.  Show  details  of 
capital  accounts. 

(From  Massachusetts  C.  P.  A.  Examination) 

Comments. — The  commission  house  in  this  case  may  sell  on  credit,  but 
as  such  accounts  are  not  guaranteed,  the  commission  house  is  not  liable 
to  the  consignors  for  sales  on  credit  until  the  accounts  have  been  paid; 
consequently,  the  net  proceeds  of  such  sales  are  not  remitted  to  the  con- 
signors until  all  accounts  have  been  collected.  On  the  other  hand,  the 
net  proceeds  of  cash  sales  are  remitted  at  once.  Credit  is  taken  for  the 
commission  on  charge  sales,  being  deducted  from  cash  sales  or  from  the 
first  payment  made  on  account  of  charge  sales,  the  net  proceeds  being  re- 
mitted to  the  consignor. 

Net  sales  for  the  period  ended  December  31,  1910,  amount  to  $600,0{K). 
An  item  of  "Accounts  Receivable  for  Account  of  Sundry  Consignors  $235,600" 
appears  in  the  trial  balance.  Cash  has  therefore  been  received  for  sales 
to  the  amount  of  $364,400,  from  which  the  commissions  on  the  sales  for 
the  entire  period  have  been  deducted,  the  proceeds,  $346,400,  having  been 
remitted  in  cash.  This  results  in  the  consignors'  accounts  receivable 
being  exactly  offset  by  an  account  with  Sundry  Consignors  Sales,  repre- 
senting the  liability  of  the  commission  house  to  the  consignors  on  un- 
collected accounts. 

The  Advances  to  Sundry  Consignors,  $105,700,  are  cash  advances  to 
consignors  whose  goods  have  been  sold  on  account,  interest  being  charged 
the  consignor  on  such  advances.  When  collections  are  made,  the  advances 
will  of  course  be  deducted  and  the  balance  remitted  to  the  consignor. 

Prepare  the  profit  and  loss  statement  in  the  usual  form  as  far  as  possible. 
Start  with  income  consisting  of  commission  and  interest;  deduct  operating 
expenses;  and  from  the  results  secured,  deduct  interest  on  partners'  capital 
and  Doe's  commission  of  1%  on  sales.  This  will  give  net  income,  which 
should  be  divided  in  the  agreed  ratio. 


396  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  189 

A  San  Francisco  corporation  builds  a  plant  and  establishes  a 
branch  in  Glasgow,  Scotland.  At  the  expiration  of  its  fiscal 
period  a  trial  balance  is  forwarded  to  the  San  Francisco  office, 
as  follows: 

Plant 

Accounts  Receivable 

Expenses 

Inventory  (end  of  fiscal  period) 

Remittance  Account 

Cash 

Accounts  Payable 

Income  from  Sales 

San  Francisco  Office 

A  trial  balance  of  the  San  Francisco  books  at  the  same  date 
was  as  follows: 

Capital  Stock  $2  500  000  00 

Patents  $1  500  000  00 

Glasgow  Account  1  640  250  00 

Remittance  Account  729  281  25 

Expenses  at  San  Francisco  25  000  00 

Cash  64  031  25      

$3  229  281  25     $3  229  281  25 


£250  000 

187  500 

25  000 

50  000 

150  000 

12  500 

£  87  500 

250  000 

337  500 

£675  000 

£675  000 

The  Remittance  Account  is  composed  of  four  sixty  (60)  day 
drafts  on  Glasgow  for  £37,500  each,  which  were  sold  in  San 
Francisco  at  $4,853^,  $4.86,  $4.86>^  and  $4.86>^  respectively. 

Required. — Prepare  a  balance  sheet  of  the  San  Francisco  books 
after  closing,  and  a  statement  of  assets  and  liabilities  of  the 
Glasgow  branch  reconciled  with  the  San  Francisco  books.  Close 
the  books  at  rate  of  exchange  on  last  day  of  fiscal  period,  $4.87i^ 
(conversion  of  remittance  to  be  made  at  the  average  rate  of 
the  four  bills). 

(From  New  York  C.  P.  A.  Examination) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  397 

Group  D — Branch  Houses — Theory  Questions 

T-141 

What  results  are  sought  to  be  secured  in  the  keeping  of  ac- 
counts with  branch  houses?  Under  what  circumstances  would 
you  debit  or  credit  such  accounts?  What  would  the  balance  of 
any  such  account  show? 

(C.  P.  A.) 


T-142 

On  June  30,  1921,  the  home  office  of  the  Boston  Textile  Com- 
pany mailed  $5,000  to  its  Cleveland  branch  and  telegraphed  the 
Cleveland  office  to  that  effect.  How  will  the  Cleveland  branch 
handle  this  item  on  their  books  so  that  its  account  with  the 
home  office  will  be  in  agreement  with  the  home  office  account 
with  the  Cleveland  branch  as  of  July  1,  1921? 


T-143 

Should  a  manufacturing  concern  invoice  its  goods  sent  to  a 
branch  house  (1)  at  selling  price,  or  (2)  at  the  prevailing  whole- 
sale price  of  the  same  or  similar  goods  obtainable  in  open  market, 
or  (3)  at  cost?     State  the  reasons  fully. 

{American  Institute) 


T-144 

A  corporation,  having  several  branch  offices,  maintains  a  gen- 
eral ledger  account  with  each  branch  and  charges,  at  selling 
value,  all  goods  sent  to  the  branches  for  stock.  When  preparing 
the  balance  sheet  at  the  closing  period,  the  balances  due  from 
the  branch  offices  are  included  with  the  accounts  receivable.  If 
you  see  any  objections  to  this  method,  state  them  and  explain 
how  you  would  deal  with  the  accounts. 

(Ohio  C.  P.  A.) 


398  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

T-145 

A  manufacturing  concern  having  several  branch  offices  for  the 
sale  of  its  product  is  in  the  habit  of  billing  the  branches  at  a 
wholesale  price  and  expects  each  branch  to  show  a  profit.  A 
balance  sheet  is  prepared  in  which  the  current  accounts  with 
the  branches  (after  closing  out  their  profits  and  losses  into  head 
office)  are  carried  as  accounts  receivable.  These  branches  carry 
a  considerable  stock  of  merchandise  and  have  their  own  accounts 
receivable  and  possibly  some  outstanding  accounts  payable. 
How  would  the  above  balance  sheet  have  to  be  modified  in 
order  to  show  correctly  the  financial  condition  of  the  business? 

{American  Institute) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  399 

Bibliography 

Consignments  and  Joint  Verdures 

Bennett,  George  E.     Accounting  Principles  and  Practice.     New  York, 

1920.     Vol.  II,  chaps,  xiii  and  xiv. 
Esquerre,  Paul-Joseph.     The  AppUed  Theory  of  Accounts.     New  York, 

1920.     Chaps,  xvii  and  xviii. 

Practical  Accounting   Problems.     Theory   Discussion    and   Solutions. 

Part  I.     New  York,   1921.     Problem  20,  pages  340-353. 
Greendlinger,    Leo.     Accounting    Practice.     New    York,    1914.     Chap. 

XXIII. 

Kester,   Roy  B.     Accounting  Theory  and  Practice.     New  York,   1917. 

Vol.  I,  chaps.  L  and  li. 
Madden,  John  T.     Accounting  Practice  and  Auditing.     New  York,  1917. 

Chaps,  vii-viii. 
McFarland,  G.  a.,  and  Rossheim,  I.  D.     A  First  Year  in  Bookkeeping 

and  Accounting.     New  York,  1915.     Chap.  xx. 
McKiNSEY,  James  O.     Bookkeeping  and  Accounting.     Cincinnati,   1921. 

Vol.  II,  series  B,  chap,  xxviii. 
WiLDMAN,  John  R.     Principles  of  Accounting.     New  York,  1914.     Chap. 

XXVIII. 

Branches  and  Selling  Agencies 

Bennett,  George  E.  Accounting  Principles  and  Practice.  New  York, 
1920.     Vol.  II,  chap.  xii. 

Coles,  A.     Company  Accounts.     London. 

Esquerre,  Paul-Joseph.  Practical  Accounting  Problems.  Theory  [Dis- 
cussion and  Solutions.  Part  i.  New  York,  1921.  Problem  8,  pages 
153-163. 

Greendlinger,    Leo.     Accounting   Practice.     New   York,    1914.     Chap. 

XXI. 

Kester,   Roy  B.     Accounting  Theory  and  Practice.     New  York,    1918 

Vol.  II,  chaps.  XXX  and  xxxi. 
Madden,  John  T.     Accounting  Practice  and  Auditing.     New  York,  1917 

Chap.  XIII. 


SECTION  VI 

MISCELLANEOUS  PROBLEMS 

Group  A. — Fire  Loss  and  Insurance  Adjustments 
Problem  190 

A  fire  in  a  manufacturing  concern  resulted  in  a  loss  on  machin- 
ery, $5,000;  merchandise,  $10,000;  office  equipment,  $3,000; 
which  amount  of  $18,000  was  agreed  on  and  paid  by  the  insur- 
ance companies. 

Required. — Give  the  journal  entries  necessary  to  record  prop- 
erly the  above  transactions  on  the  books  of  the  concern. 

(From  New  York  C.  P.  A.  Examination) 

Comments. — A  Fire  Loss  Adjustment  accoimt  should  be  used.  Charge 
this  account  with  all  losses  on  account  of  the  fire,  at  which  time  the  proper 
asset  account  should  be  credited.  Credit  Fire  Loss  Adjustment  with  any 
salvage  values  and  amount  received  from  the  insurance  companies. 


Problem  191 

The  books  of  a  concern  recently  burned  out  contained  evidence 
of  purchases,  including  inventory,  of  $200,000,  and  sales  of 
$40,800  since  the  last  closing.  Upon  investigation,  however,  the 
auditor  ascertained  that  a  sale  of  merchandise  had  been  made 
just  prior  to  the  fire,  and  not  recorded  in  the  books,  at  an  advance 
of  two-fifths  over  cost,  less  a  10%  cash  discount,  on  which  the 
profit  was  $31,928.  The  past  history  of  the  business  indi- 
cated an  average  gross  profit  of  50%  on  cost  of  goods  sold. 

401 


402  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required: 

(a)  What  amount  should  be  claimed  as  fire  loss? 

(b)  What  rate   of  gross  profit  do  the  transactions  finally 
yield? 

{From  American  Institute  Examiruiiion) 


Problem  192 

On  April  1,  1921,  the  garage  occupied  by  the  Acme  Grocery 
Company  was  totally  destroyed  by  fire,  together  with  its  entire 
contents,  including  trucks  and  other  equipment  of  the  above 
company. 

The  following  accounts  are  found  on  the  books  of  the  company 
at  the  time  of  the  fire:  Delivery  Equipment,  $8,000;  Reserve 
for  Depreciation  of  Delivery  Equipment,  $1,600;  Unexpired 
Insurance  on  Delivery  Equipment,  $240. 

Depreciation  has  been  credited  at  the  rate  of  10%  per  annum 
up  to  January  1,  1921.  The  insurance  is  paid  in  advance  until 
December  31,  1921.  The  Insurance  Company  settled  for  the 
book  value  of  the  equipment. 

Required. — Necessary  journal  entries  with  complete  particulars 
to  record  the  above  and  adjust  all  accounts  affected. 

Comments. — Set  up  a  Fire  Loss  Adjustment  account  as  in  the  preceding 
problem.     The  various  adjustments  will  be  made  in  the  following  order: 

(1)  Provide  for  depreciation  from  the  beginning  of  the  fiscal  period  to 
the  date  of  the  fire. 

(2)  Close  the  reserve  account  into  the  asset  account. 

(3)  Close  the  book  value  of  the  asset  account  into  the  Fire  Loss  account. 

(4)  Write  off  the  unexpired  insurance,  charging  the  proportion  to  time  of 
fire  to  Expense,  and  the  balance  to  Fire  Loss. 

(5)  Assuming  that  cash  is  received  from  the  Insurance  Company  in 
settlement  of  the  claim,  credit  the  same  to  Fire  Loss  Adjustment  account. 

(6)  Close  the  Fire  Loss  account  into  Surplus. 


CLASSIFIED  PROBLEMS  AND  EXERCISES  403 

Problem  193 

A  company  has  several  delivery  trucks  charged  to  Truck 
account  at  cost,  against  which  it  has  set  up  depreciation  at  the 
end  of  each  year  by  a  credit  to  a  separate  Reserve  for  Deprecia- 
tion of  Trucks,  debiting  the  amount  to  Profit  and  Loss  account. 

A  truck  was  purchased  January  1,1918,  for  $4,000.  Deprecia- 
tion has  been  provided  at  20%  per  annum.  On  December  31, 
1919,  the  truck  is  wrecked  by  colhsion.  $1,000  is  obtained  from 
the  insurance  company,  and  $250  from  salvage. 

Required. — Entries  necessary  to  adjust  the  ledger  accounts. 

i American  Institute) 


Problem  194 

On  the  evening  of  September  30,  1921,  a  fire  broke  out  in  the 
plant  of  the  Zanesville  Manufacturing  Company  and  partially 
destroyed  the  power  plant  and  equipment,  the  loss  on  the  power 
plant  building  amounting  to  $30,000,  and  the  equipment  to 
$50,000.  The  power  house  was  insured  in  the  amount  of  $40,000, 
and  the  equipment,  $100,000.  The  policies  containing  the  80% 
coinsurance  clause  were  taken  out  on  April  1,  1921,  for  a  term 
of  three  years,  the  premium  amounting  to  $1,850.  On  April  1, 
1921,  the  value  of  the  power  house  and  equipment  as  shown 
on  the  balance  sheet  was  as  follows: 

Power  House  Building  (cost)  $  80  000 

Less— Reserve  for  Depreciation  18  OOP     $  62  000 

Power  House  Equipment  (cost)  $225  000 

Less — Reserve  for  Depreciation  77  500     $147  500 

Depreciation  has  been  figured  at  the  rate  of  5%  per  annum  on 
the  power  house  building,  and  10%  on  the  equipment. 

A  settlement  was  effected  with  the  insurance  company  on  the 
above  basis. 


404  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Required. — Journal  entries  necessary  to  record  all  of  the  ad- 
justments on  account  of  the  fire. 

Comments. — All  of  the  principles  illustrated  in  this  problem  have  been 
illustrated  in  previous  problems  with  the  exception  of  the  80%  coinsurance 
clause.  Where  the  policy  contains  this  clause  the  insurance  company  will 
be  liable  only  for  that  proportion  of  the  loss  that  the  face  of  the  policy  bears 
to  80%  of  the  value  of  the  property  at  the  time  of  the  fire  (book  value  here). 
For  instance,  in  the  case  of  the  Power  House  Building,  it  will  be  necessary 
to  first  find  the  book  value  of  the  property.  The  depreciation  for  the  six 
months  from  April  1  to  September  30,  the  date  of  the  fire,  at  5%  amounts  to 
$2,000,  which  added  to  the  reserve  already  set  up  makes  that  amount 
$20,000,  which  deducted  from  the  cost,  $80,000,  leaves  the  book  value 
$60,000.  80%  of  this  book  value  amounts  to  $48,000.  The  face  of  the 
policy  being  only  $40,000,  the  insurance  company  will  only  be  liable  for 
40,000/48,000  or  5/6  of  the  loss.  5/6  of  $30,000  loss  amounts  to  $25,000. 
The  loss  on  Power  House  Equipment  will  be  figured  in  a  similar  manner. 

The  journal  entries  to  adjust  the  accounts  will  be  made  as  in  previous 
problems. 


Problem  195 

The  Graham  Mercantile  Company  have  a  fire.  It  is  ascer- 
tained that  at  the  time  of  the  fire  their  merchandise  inventory 
was  $10,000,  on  which  they  sustained  a  loss  of  $5,000.  Their 
merchandise  was  insured  for  $7,000,  subject  to  a  coinsurance 
clause  of  80%.  What  should  the  insurance  company  offer  them 
in  settlement  of  this  loss? 

(Arkansas  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  405 

Problem  196 

It  is  now  becoming  quite  common  practice  for  corporations  to 
insure  the  lives  of  their  principal  officers,  so  that  upon  their 
deaths  the  corporations  may  be  in  a  measure  reimbursed  for  the 
loss  to  the  business.  You  are  asked  to  indicate  what  sort  of 
entries  would  be  made  by  the  company,  from  time  to  time,  if 
it  paid  the  insurance  premiums  on  a  policy  of  insurance  for 
$50,000  carried  on  the  life  of  its  president  under  the  four 
classes  of  insurance  policies  indicated  below: 

10  year  renewable  term  policy 
20  payment  life  policy 
Straight  life  policy 
20  year  endowment  policy 

Also  indicate  what  entries  should  be  made  in  the  books  for 
the  receipt  of  the  $50,000  principal  of  the  different  classes  of 
policies,  supposing  the  president  of  the  company  died  during 
the  fifth  year  of  the  insured  term. 

{American  Institute) 


Problem  197 


The  A.  J.  Schissler  Company  suffered  a  fire  on  June  25,  1921, 
resulting  in  the  loss  of  its  building,  furniture,  and  the  greater 
part  of  its  stock.  A  trial  balance  taken  on  June  30,  1921,  before 
any  adjustments  are  made,  shows  the  following: 

THE  A.  J.  SCHISSLER  COMPANY 


Trial  Balance— June  30,  1921 


Cash 

Notes  Receivable 

Accounts  Receivable 

Merchandise 

Consignment  1 

Consignment  2 

Consignment  3  (cost) 


$11  320  21 

1  317  72 

2  559  94 

3  342  80 

302  50  $ 

336  87 

518  60 

484  50 

1  955  00 

$7 

125  00 
207  90 
549  62 

133  77 

$217  21 

32  11 

81  77 

2  04 

25  24 

2  742  27 

4  686  37 

20  000  00 

792  98 

|29 

367  21 

$29  367  21 

406  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Real  Estate 
Furniture  and  Fixtures 
General  Expense 
Merchandise  Discount 
Discount 
Interest 
Notes  Payable 
Accounts  Payable 
Capital  Stock 
Surplus 

The  furniture  is  a  total  loss.  The  damaged  stock  was  sold 
for  $1,500.  A  cash  settlement  is  made  with  the  insurance  com- 
panies for  $8,000;  $3,000  on  stock  and  $5,000  on  building. 

In  preparing  the  financial  statements,  you  find  that  the  books 
contain  a  general  Merchandise  account,  an  analysis  of  which 
shows  the  following  charges  and  credits: 

Merchandise  debits 

Inventory,  January  1,  1921  $  3  372  55 

Purchases  14  152  39 

Freight  and  Cartage  In  377  52 

Merchandise  credits 

Sales— regular  $10  059  46 

Sales  of  damaged  goods  1  500  00 

Insurance  settlement  3  000  00 

The  cost  of  goods  damaged  and  destroyed  by  the  fire  is  esti- 
mated at  $8,920.38.  The  cost  of  goods  consigned  to  commission 
merchants — charged  to  Consignments  in  the  above  trial  bal- 
ance— amounting  to  $2,776.10,  is  not  included  in  the  purchases 
for  June.     These  goods  were  shipped  in  May. 

The  Real  Estate  account  shows  a  debit  of  $12,125,  represent- 
ing the  original  cost,  and  a  credit  of  $5,000,  representing  the 
insurance  settlement.     The  building  lot  is  appraised  at  $6,000. 

Required: 

(c)    Make  the   necessary   adjusting   entries,    including    the 

entry  necessary  to  close  the  Merchandise  account  and 

open  the  detail  accounts:    Inventory,  Purchases,  Sales, 

Freight  and  Cartage  In,  and  Fire  Loss 
()))   Statement  showing  fire  loss 
(c)   Profit  and  loss  statement  showing  the  profit  on  sales  to 

time  of  fire,  followed  by  final  net  loss 


CLASSIFIED  PROBLEMS  AND  EXERCISES  407 

(d)  Balance  sheet  in  usual  form 

(e)  Necessary  entries  to  close  all  the  accounts. 

Comments. — Set  up  a  Fire  Loss  account  to  which  all  losses  on  accoimt  of 
fire  will  be  transferred,  and  to  which  will  be  credited  the  amount  received 
from  the  insurance  company. 

The  credits  to  the  consignment  accounts  represent  the  proceeds  of  the 
account  sales.  Consignments  1  and  2  will  therefore  be  closed  into  Profit 
and  Loss  account.  Consignment  3  will  be  carried  as  an  asset  in  the  balance 
sheet,  as  it  represents  the  cost  of  goods  consigned  and  in  the  hands  of 
commission  merchants. 


Problem  198 

A  firm  manufacturing  but  one  grade  of  cloaks,  insured  against 
burglary,  claims  to  have  been  robbed  on  the  night  of  September 
10. 

The  proof  of  the  loss  filed  by  the  assured  contained  two  items 
for  600  cloaks,  $12,000;  silk,  1,000  yards,  $1,500. 

An  inventory  of  the  stock  on  hand,  consisting  of  cloaks,  cloth 
and  silk,  had  beei^  taken  January  1,  amounting  to  $118,500,  the 
particulars  of  which  have  been  lost  or  destroyed. 

An  analysis  of  the  firm's  books  produced  the  following  infor- 
mation : 

Purchase  of  cloth,  37,500  yards  at  $1. 

Purchases  of  silk,  10,000  yards  at  $2. 

6,000  cloaks  were  manufactured,  consuming  cloth,  40,000  yards  at  $1. 
silk,  10,000  yards  at  $2. 

9,000  cloaks  were  sold  between  Jan.  1  and  Sept.  10. 
Cost  of  sales,  per  cloak,  for  material  $10  00 

Cost  of  sales,  per  cloak,  for  labor  and  sundries  7  00 

$17  00 

Inventory,  September  11—2,500  cloaks  at  $17;  12,500  yards 
cloth  at  $1;  5,000  yards  silk  at  $2. 

Required. — Prepare  a  statement  proving  or  disproving  the 
claim. 

(From  New  York  C.  P.  A.  Examination) 


408  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem   199 

The  office  of  a  firm  of  traders  doing  business  in  San  Francisco 
was  destroyed  by  an  eartliquake,  Tlie  books  of  account,  which 
had  been  fully  posted,  were  badly  damaged.  The  following 
ledger  accounts  were  found  to  be  legible: 

Purchases,  net,  $69,000;  Discounts  Lost,  $640;  Discounts  Gained,  $3,450; 
Sales,  $54,000;  Bills  Receivable,  $33,000.  Inquiry  at  the  bank  disclosed 
a  balance  on  deposit,  $129,000.  Bills  receivable  amounting  to  $45,000  had 
been  discounted  at  the  bank.  An  audit  of  the  checks  paid  by  bank  showed 
that  $99,000  had  been  paid  creditors  (including  $60,000  notes  payable).  A 
balance  sheet  prepared  at  the  last  closing  of  the  books  was  produced,  con- 
taining the  following  items: 

Cash,  $60,000;  Accounts  Receivable,  $126,000;  Loans  Receivable,  $24,000; 
Real  Estate,  $90,000;  Notes  Receivable,  $78,000;  Capital,  $318,000;  Notes 
Payable,  $60,000. 

Required. — A  trial  balance  supplying  the  missing  accounts. 

{From  New  York  C.  P.  A.  Examination) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  409 

Group  B — Suspense  Items  and  Adjustments 

Problem  200 

In  taking  off  a  trial  balance  a  l)ookkeeper  finds  that  his  debit 
footing  exceeds  the  credit  by  $131.56,  which  amount  he  carries 
to  a  Suspense  Account.  Later  he  discovers  that  a  purchase 
amounting  to  $417.50  had  been  debited  to  a  creditor  as  $192.94; 
that  $312.50  for  depreciation  of  machinery  had  not  been  posted 
to  Depreciation  account;  that  $500  withdrawn  by  the  proprietor 
had  been  charged  to  Wages  account;  that  a  discount  allowed  to 
a  customer  of  $76.13  had  been  posted  to  the  wrong  side  of  Mer- 
chandise Discount  account;  and  that  the  total  of  sales  returned 
was  footed  $5  short. 

Required. — Give  entries  showing  how  you  would  remedy  these 
errors,  and  starting  with  the  original  difference  prepare  a  supple- 
mentary schedule  showing  whether  the  books  are  now  in  balance. 

{From  Illinois  C.  P.  A.  Examination) 

Comments. — Make  adjusting  entries  to  correct  all  errors,  charging  or 
crediting  Suspense  account  for  those  items  not  affecting  other  accounts. 
For  instance,  in  the  first  item,  in  order  to  correct  the  creditor's  account  it 
will  be  necessary  to  credit  same  with  $610.44,  the  entry  being: 

Suspense  Account  $610  44 

Accounts  Payable  $610  44 

After  making  entries,  set  up  a  Suspense  Ledger  account  with  a  credit  of 
$131.56.  To  this  will  be  added  the  credits  to  Suspense  and  ffom  it  will  be 
deducted  the  debits.  The  result  will  determine  whether  or  not  the  books 
are  in  balance. 


Problem  201 


July  1. — X  Company  arranges  with  Broker  B  to  discount 
accounts  receivable  amounting  to  $24,000,  consisting  of  fifty 
accounts,  on  a  20%  margin,  commission  5%  gross. 

Aug.  1. — A  Company,  whose  account  amounts  to  $500,  fails, 


410  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

and  the  broker  returns  the  account  to  X  Company,  who  gives 
proper  credit  for  the  same.  At  the  same  time,  the  broker 
reports  collection  of  ten  accounts  aggregating  $4,000. 

Sept.  1. — Broker  B  reports  the  remainder  of  the  accounts  col- 
lected and  remits  balance  of  collections. 

Required. — Set  up  entries  covering  the  above  transactions. 

Comments. — This  problem  illustrates  the  practice  of  discounting  ac- 
counts receivable  sometimes  indulged  in  by  firms  in  financial  difficulty. 
At  the  time  the  accounts  are  discounted  a  contingent  liability  account 
called  "Customers  Accounts  Discounted"  should  be  credited.  As  the 
customers  accounts  are  paid  the  contingent  liability  account  is  charged 
and  the  customer  credited. 


Problem  202 

Brown  has  a  customers'  ledger,  a  purchase  ledger,  and  a  gen- 
eral ledger,  the  latter  containing  controlling  accounts  with  the 
other  two.  When  his  bookkeeper  submitted  to  him  trial  bal- 
ances of  the  three  he  observed  that  White  owed  him  $100,  sub- 
ject to  a  cash  discount  of  2M%,  and  an  allowance  for  outward 
freight  of  $1.68,  neither  of  which  items  has  been  entered  in  the 
books;  and  that  he  owed  White  $100,  subject  to  a  discount  of 
4%,  which  had  not  been  entered.  He  directed  the  bookkeeper 
to  adjust  the  accounts  by  a  remittance  of  stamps. 

Required. — Draft  entry  or  entries  that  will  close  the  two 
personal  accounts  and  maintain  the  reconcilement  of  the  ledgers. 

{From  Massachusetts  C.  P.  A.  Examination) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  411 

Problem  203 

When  auditing  the  books  of  a  company  which  are  not  in 
balance  the  following  errors  are  discovered: 

1.  A  check  drawn  for  $110  is  entered  in  the  cash  book  as  a 
collection  of  SI 00  and  posted  to  the  debit  of  the  creditor's 
account  as  $110. 

2.  A  customer's  credit  memo  of  $25  is  included  as  a  sale  and 
posted  to  the  credit  of  the  customer's  account  as  $20. 

3.  The  debit  side  of  the  cash  book  is  underfooted  $100,  and  a 
check  drawn  for  $100  in  payment  of  a  creditfor's  account  is  not 
entered  in  the  cash  book. 

4.  Discounts  received  of  $250  are  posted  as  discounts  allowed. 

5.  Capital  stock  to  the  par  value  of  $5,000  was  issued  and 
charged  to  the  president.  $2,500  of  this  stock  was  sold  by  him 
at  par  and  the  proceeds  credited  to  the  Capital  Stock  account. 
The  balance  of  the  issue,  $2,500,  was  later  canceled,  the  Capital 
Stock  account  charged  and  the  president's  account  credited 
with  that  amount. 

Required. — Prepare  journal  entries  for  accounts  in  the  general 
ledger  and  subsidiary  ledgers  which  are  controlled  by  accounts 
in  the  general  ledger,  to  correct  the  foregoing  errors. 

(From  Kansas  and  Missouri  C.  P.  A.  Examinations) 

Comments. — The  instructions  are  very  clear  as  to  what  adjustments  to 
make.  Set  up  the  journal  entries  for  the  adjustments  with  complete  par- 
ticulars as  to  why  the  entry  is  made.  The  propriety  of  making  some  of 
these  adjustments  might  well  be  commented  upon  in  solving  the  problem. 


412  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

Problem  204 

THE  LANDSDALE  MQNOTILE  COMPANY 

Balance-sheet — December  31,  1918 


Assets 

Liabilities  and  Capital 

Land  and  Buildings                        $500  000 

Capital  Stock            $ 

300  000 

Less — Reserve  for  Depreciation    120  000 

$     380  000 

Notes  Payable 

350  000 

Machinery  and  Equipment             $200  000 

Accounts  Payable 

158  000 

Less — Reserve  for  Depreciation      80  000 

120  000 

Interest  Accrued 

U.  S.  Victory  Bonds 

100  000 

Payable 

3  000 

Merchandise — Inventory 

125  000 

Surplus 

314  000 

Cash 

58  000 

Accounts  Receivable                            250  000 

Less — Reserve  for  Doubtful  Ac- 

counts                                            12  500 

237  500 

Notes  Receivable 

100  000 

Accrued  Interest  Receivable 

4  500 

Total 


$1   125  000 


The  accruals  at  the  time  of  closing  were: 


Total 


$1   125  000 


Interest  on  notes  payable,  $3,000;  depreciation  of  buildings,  $20,000; 
interest  on  notes  receivable,  $2,000;  depreciation  of  machinery  and  equip- 
ment, $30,000;  interest  on  Victory  bonds,  $2,500;  provision  for  doubtful 
accounts,  $12,500.  The  other  nominal  accounts  closed  out  were:  sales, 
$325,000;  administrative  expense,  $50,000;  cost  of  goods  sold,  $125,000; 
selling  expense,  $25,000. 

Required. — Trial  balance  before  closing. 

iProm  American  Institute  Examinations) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  413 

Group  C — Miscellaneous — Theory  Questions 
T-146 

The  Insurance  account  as  kept  upon  the  books  of  the  Good 
Merchandise  Company  is  charged  with  the  premiums  paid  on 
the  following  kinds  of  insurance:  Fire  Insurance  on  Buildings, 
Merchandise  and  Fixtures;  Sprinkler  Leakage;  Employer's 
Guarantee  Bond;  Safe  Burglary;  Robbery  and  Hold  Up;  Auto- 
mobile Fire,  Theft,  and  Liability;  General  Liability;  Elevator 
Liability;  Steam  Boiler;  Tornado;  Plate  Glass;  Use  and  Occu- 
pancy; Insurance  on  Officers'  Lives. 

You  are  asked  to  indicate  the  proper  treatment  to  be  given 
each  of  the  above  items;  i.  e.,  indicate  the  name  of  the  account 
or  accounts  to  which  they  should  be  charged,  give  the  adjusting 
entries,  state  the  section  of  the  profit  and  loss  statement  in  which 
each  would  appear,  etc. 

(Wisconsin  C.  P.  A.) 


T-147 

The  entire  stock  on  hand  of  a  mercantile  concern  is  destroyed 

by  fire.     The  financial  books  are  saved. 

How  would  you  ascertain  the  amount  of  loss  to  claim  against 

the  insurance  company? 

(Massachusetts  C.  P.  A.) 


T-148 

A  fire  occurred  in  the  plant  of  A.  C.  Company,  resulting  in  an 
estimated  loss  of  $50,000,  and  settlement  was  made  with  the 
insurance  companies  on  that  basis. 

Upon  receipt  of  check  for  $50,000  from  the  insurance  com- 
panies, the  treasurer  of  the  company  instructed  the  bookkeeper 
to  credit  the  amount  received  to  an  Unexpended  Fire  Insurance 
Suspense  account.  All  repairs  and  renewals  together  with  all 
other  expenses  incident  to  the  fire  were  charged  by  the  treasurer's 
instructions  to  a  Fire  Repairs  account. 


414  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

After  the  work  had  been  completed,  this  account,  which  then 
showed  a  total  of  $35,000,  was  closed  into  the  account  with 
Unexpended  Fire  Insurance  Suspense.  No  disposition  has  been 
made  of  the  credit  balance  of  $15,000  remaining  in  said  account. 

Taking  into  consideration  all  of  the  facts  as  stated  above, 
including  the  matter  of  Federal  taxes,  do  you  approve  of  the 
above  method  of  handling  the  case?  If  not,  what  procedure 
would  you  recommend? 


T-149 

(a)  Explain  the  method  of  quoting  French  exchange  in  U.  S. 
money. 

(b)  With  reference  to  the  above,  explain  the  following  phrase 
in  a  certain  work  on  foreign  exchange:  "The  higher  the  rate, 
the  lower  the  quotation." 

(c)  What  is  the  present  rate  of  exchange  on  France?     Give 

date  used. 

{New  York  C.  P.  A.) 


T-150 

A  company  in  the  manufacturing  business  has  had  an  unusually 
profitable  year  due  to  large  purchases  of  material  made  the 
previous  year  at  a  very  low  price.  In  reporting  the  earnings  for 
the  year  during  which  the  contract  was  made  and  the  year  in 
which  the  material  was  received  and  consumed,  would  you  con- 
sider any  adjustments  necessary  in  view  of  the  above?  Answer 
fully. 

{North  Carolina  C.  P.  A.) 


T-151 

Assuming  an  automobile  manufacturing  company  made  a 
contract  for  rubber  tires  at  $35  each  with  the  understanding  that 
it  was  to  receive  a  rebate  of  $5  a  tire  if  the  purchases  exceeded 


CLASSIFIED  PROBLEMS  AND  EXERCISES  415 

40,000  tires  and  thp.t  at  the  end  of  the  season  when  the  accounts 

were  made  up,  say  on  July  31,  it  was  found  that  45,000  tires 

had  been  purchased  and  a  claim  for  the  rebates  was  thereupon 

made  and  a  check  in  settlement  was  received  on  August  31 

following.     On  July  31  there  were  15,000  tires  on  hand.     At 

what  price  should  they  be  valued  for  inventory  purposes  and 

how  should  the  rebate  be  dealt  with  in  the  accounts  for  the  year 

ending  July  31? 

{Illinois  C.  P.  A.) 


T-152 

At  the  date  of  closing  two  contracts  are  in  hand  and  uncom- 
pleted) one  for  $1,200,  estimated  to  cost  $900,  is  three-quarters 
finished  and  is  already  charged  to  customer  at  $1,200;  the  other 
is  $2,000,  estimated  to  cost  $1,500,  is  half  finished,  and  no  entry 
has  been  made  therefor.  Suggest  entries  necessary  to  adjust 
these  accounts  so  that  anticipation  of  profits  will  not  occur. 

{New  Y(yrk  C.  P.  A.) 


T-153 

At  the  time  of  taking  inventories  and  closing  its  accounts, 
preparatory  to  ascertaining  its  financial  condition,  a  corporation 
has  obligations  under  contracts  to  pay  for  raw  materials  to  arrive, 
on  which  no  payments  have  been  made.  At  the  time  of  closing 
the  accounts,  the  prices  of  the  contracts  are  in  excess  of  the  market 
prices  for  deliveries  corresponding  with  the  contracts.  State: 
(a)  how  this  condition  should  be  reported  in  the  accounts  and 
statement  of  financial  condition,  and  (b)  your  reasons. 


T-154 

An  ice  company  sells  coupon  books  to  its  customers;  the 
coupons  are  to  be  used  in  paying  for  ice  delivered.  These 
coupon  books  are  paid  for  in  advance  by  the  customers.     What 


416  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

accounts  should  be  opened  on  the  company's  books  to  record 
such  transactions  and  how  should  the  sale  of  coupons  and  de- 
liveries of  ice  appear  therein? 

{Wisconsin  C.  P.  A.) 


T-155 

Give  some  principles  to  determine  a  proper  disposition  of  the 
cost  of  enlarging  a  plant  including  a  partial  re-building  of  the 
old  portion. 

In  case  you  have  insufficient  data  to  enable  you  to  apply  these 
principles  satisfactorily,  offer  some  solution  of  the  difficulty. 

{American  Institute) 


T-156 

In  a  certain  department  of  a  large  dry-goods  house  purchases 
for  a  year  were  $30,000.  They  were  in  the  first  place  marked  up 
for  "selling"  purposes  to  $45,000.  Later  additional  mark-ups 
amounting  to  $2,000  were  made  and  mark-downs  were  also 
recorded  aggregating  $5,000.  At  the  end  of  the  fiscal  period 
there  were  found  to  be  on  hand  goods  of  the  marked  selling  value 
of  $10,000.  State  how  you  would  ascertain  their  inventory 
^•aluc  for  the  purpose  of  closing  the  books  and  calculate  the 
amount.     Explain  fully. 

{American  Institute) 


T-157 

Define  and  differentiate  the  following  kinds  of  accounts: 

(a)  Real  and  Nominal. 

(b)  Personal  and  Impersonal 
(e)   Current  and  Summary, 
(d)  Controlling  and  Specific. 

{Michigan  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  417 

*  T-158 

(a)  What  different  methods  should  be  employed  in  books  of 
account  for  keeping  track  of  notes  endorsed  for  accommodation 
and  notes  endorsed  in  the  regular  order  of  business? 

(b)  How  would  you  indicate  in  books  of  account  the  contingent 
liability  arising  in  each  case? 

{Michigan  C.  P.  A.) 


T-159 

A  company  packs  a  coupon  in  each  box  of  goods  sold.  The 
company  agrees  to  redeem  100  coupons  with  premiums  costing 
$1  apiece.  25%  of  the  coupons  are  never  presented  for  redemp- 
tion. 

Prepare  sample  journal  entries  for  the  bookkeeper  to  follow 
which  will  give  the  last  of  each  month  the  expense  for  the  month 
of  the  coupons  given  out,  the  amount  of  premiums  on  hand,  and 
the  gross  and  net  liability  for  outstanding  coupons,  and  state 
briefly  how  these  entries  will  produce  the  result  wanted. 

{Massachusetts  C.  P.  A.) 


T-160 

A  manufactumg  company  ships  its  products  in  packages  cost- 
ing 7/^0  each.  They  are  charged  to  customer  at  lOjif  each  but 
subject  to  credit  when  returned  in  good  order  at  same  price  as 
charged.  At  close  of  year,  Package  account  shows  an  apparent 
gain,  being  the  difference  between  cost  of  package  and  amount  of 
contingent  sales.  What  disposition  should  be  made  of  the 
ledger  gain  at  close  of  year? 

{Michigan  C.  P.  A.) 


T-161 

A  milk  company  sells  to  its  customers  strips  of  tickets  which 
are  good  in  payment  of  the  milk  delivered  to  them.     These 


418  ACCOUNTING  PROBLEMS:  INTERMEDIATE 

tickets  arc  paid  for  in  advance  by  the  customers.  What  accounts 
would  you  expect  to  find  on  the  books  and  how  should  the  entries 
be  handled  showing  the  transactions  of  the  sales  of  tickets  and 
the  deliveries  of  milk? 

{Michigan  C.  P.  A.) 


T-162 

Where  land  is  donated  to  a  manufacturing  concern  under 
conditions  requiring  a  number  of  years  for  their  fulfillment,  how 
would  you  treat  the  transaction  on  the  books  of  the  donee? 

(Ohio  C.  P.  A.) 


T-163 

In  some  trades  it  is  customary  to  deduct  cash  discounts  from 
invoices  before  taking  the  same  into  the  accounts.  What  is 
the  theoretical  objection,  if  any,  to  so  doing? 

{Ohio  C.  P.  A.) 


T-164 

A  concern  leases  certain  premises  for  a  long  term  and  makes 
extensive  alterations  and  additions  at  its  own  expense.  How 
would  you  treat  such  expenditures  in  the  accounts? 

{Ohio  C.  P.  A.) 


T-165 

Explain  the  purpose  and  manner  of  keeping  a  private  ledger 
as  a  part  of  the  financial  books  of  a  corporation  or  firm  and  how 
the  entries  on  same  should  be  handled  on  the  general  ledger. 
Explain  fully. 

{Maryland  C.  P.  A.) 


CLASSIFIED  PROBLEMS  AND  EXERCISES  419 

"•  Bibliography 

Miscellaneotts 

Bennett,  George  B.  Accounting  Principles  and  Practice.  New  York. 
Vol.  I,  1920.     Vol.  II,  1921. 

Cox,  Henry  C.  Advanced  and  Analytical  Accounting.  Busine.ss  Account- 
ing, vol.  IV.     New  York,  1920.     Chap.  xx. 

EsQUERRE,  Paui^-Joseph.  Applied  Theory  of  Accounts.  New  York,  1920. 
Chap.  XII. 

Greeley,  Harold  Dudley.  Theory  of  Accounts.  Vol.  i.  Business  Ac- 
counting.    New  York,  1920. 

Kester,  Roy  B.  Accounting  Theory  and  Practice.  New  York.  Vol.  i, 
1917.     Vol.  II,  1918,  chap,  xxxii. 

WiLDMAN,  John  R.  Principles  of  Accounting.  New  York,  1914.  Chap. 
xu. 


INDEX 


Account : 

advances  to  sundry  consignors, 
395 

altering    and    trimming   depart- 
ment: 
function  of,  138 
how  treated  in  profit  and  loss 
statement,   140 

amounts    due    from    consignees, 
138 

bonus,  248 

bonus  to  department  managers 
and  salesmen,  148 

branch  office,  389 

broker,  383 

building  and  construction,  264 

cash,    cashier's    shortage,    how 
treated,  193 

consigned  goods,  377 

consignments,  377,  380,  407 

fire    loss    adjustment,   401,    402, 
407 

formulae,  trade-marks,  and  pat- 
ents, 255 

goods   in    hands   of   consignees, 
138 

home  office,  389 

joint  adventure,  381 

joint  consignment,  382 

premium     paid     for     leasehold, 
how  treated,  193 

profit    and    loss   in    liquidation, 
288,  289 

realization  and  liquidation,  368 

royalty,  how  treated,  193 

sale  of  stock  rights,  267 

sundry  consignors'  sales,  395 

surplus  credit,  344 


Account : 

suspense,  409 
vendors'  stock,  292 
waste    sales,     how    treated    in 
profit    and    loss    statement. 
197 
Accounts : 

customers',  discounted,  410 
payable,     estimated     discounts 

on,  195 
receivable  for  account   of  sim- 
dry  consignors,  395 
Adjusting  entries: 
illustrations: 

partnership.    Hall    and    Mar- 
vin, 20 
Adjustments: 

balance  sheet,  341 
capital,  357 
effects  of,  338 
general,  338 
surplus,  338 
American  Bankers'  Association: 
illustrative  form  for  credit  [)ur- 
poses : 
firm  or  individual,  manufac- 
turer or  merchant,  64,  65 
corporation,  66,  67 
American  Hide  and  Leather  Com- 
pany and  Subsidiaries" 
consolidated   balance  sheet.   58, 
59 
American     International     Corpora- 
tion : 
condensed  balance  sheet,  52 
condensed  income  account,  53 
American  Locomotive  Company: 
condensed  income  account,  90 
consolidated  balance  sheet,  91 
92 


421 


422 


INDEX 


Arlington  Research  Club: 

statement  of  cash  receipts  and 
disbursements,  68 
American  Wiiting  Paper  Company: 
balance  sheet,  76 
profit  and  loss  statement, '77 
surplus  account,  76 
Atchison,    Topeka,    and    Santa    Fe 
Railway      Company  —  Sys- 
tem: 
balance  sheet,  93,  94 
income  account,  95 
Audit : 

form  of  report,  118,  119,  120 


B 


Balance  sheet: 
grouping,  9 
heading,  9 
illustrations: 
a    Massachusetts    trust    com- 
pany, 112,  113 
Boston  City  Club,  107,  108 
comparative : 
The     Boston     Dry     Goods 
Company,  54,  55 
consolidated : 

American  Hide  and  Leather 
Company  and  Subsidiary 
Companies,   58,   59 
American  Locomotive  Com- 

l)any,   91 
Northern  State  Power  Com- 
]iany    of     Delaware     and 
Subsidiaries,  96,  97 
The  Willys-Overland  Com- 
pany and  Subsidiary  Com- 
panies, 78,  79 
Ignited  States  Steel  Corpo- 
ration, 82,  83,  84,  85 
Westinghouse    P^lectric   and 
Manufactm'ing  Company, 
80 
double  account  form : 

Royal  Manufacturing  Com- 
pany, 60 


Balance  sheet : 
illustrations : 
English  form,  62,  63 
Federal  Reserve  Board,  form 

recommended  by,  70,  71 
Mutual   Insurance    Company, 

109 
National  Bank,  111 
Needham  Co-operative  Bank, 

115 
Newton      Mercantile      Com- 
pany, 121 
The    Atchison,    Topeka,    and 
Santa    Fe    Railway    Com- 
pany— System,  93,  94 
University  of  Chicago,  99, 100 
report  form: 

George  W.  Dunn,  8 
indentation,  9 
punctuation,  9 
underlining,  9 
Bank  statements: 
balance  sheet: 
a    Massachusetts    trust    com- 
pany, 112,  113 
national  bank.  111 
Needham  Co-operative  Bank, 
115 
statement  of  condition: 

a  Massachusetts  savings  bank, 
112,  113 
Bibliography : 

consignments    and    joint     ven- 
tures, 399 
corporations,  322,  323 
depreciation,    reserves,    surplus, 

349 
financial  statements,  240,  241 
miscellaneous,  419 
partnerships,  377 
Bond : 

issue,  259,  260 

premium  and  discount,  259,  260 
Bonds : 

convertible,  268 
interest  on,  260 


INDEX 


423 


Bonds : 

problems,  Nos.  115-123,  314-318 
"taken  down,"  317 
theory  questions,  Nos.  T-87  to 
T-98,  31»-321 
Boston  City  Club: 

balance  sheet,  107,  108 
comparative    department    oper- 
ating statement,   106 
comparative     profit     and     loss 
statement,  105 
Branch  houses,  selling  agencies : 
branch   office   accoimt,   387 
home  office  account,  387 
problems,  Nos.  180-189,  387-396 
theory  questions,  Nos.  T-141  to 
T-145,  397-399 
Building  contract,  271 


Capital  stock: 

increase  of,  268 
adjusted,  357 
Cashier's  shortage,  how  treated,  193 
Certificate  of  condition: 

form  of,  73,  74,  75 
Closing  entries : 

illustrative  forms: 
cori)oration.    The     Harmon- 

Streeter  Company,  35,  36 
manufacturing,  Model  Manu- 
facturing Company,  42,  43 
partnership.    Hall    and    Mar- 
vin, 29 
sole     ])roprietorship,     George 
W.  Dunn,  15,  16,  17 
Commission   house   accounting,   395 
Consignments,  joint  ventures: 

problems,  Nos.  170-179,  377-384 
theory  questions,  Nos.  T-136  to 
T-140,  385-386 
Contingent  asset,  264 
Contracts : 

anticipating  i)rofits  on,   156 


Corporation  statements,  etc.: 

entries  changing  from  partner- 

shij),  250,  251 
illustrative  forms: 
balance  sheet: 

American  Hide  and  Leather 
Company,  consolidated, 
58,  59 

American  International  Cor- 
poration, condensed,  52 

American  Locomotive  Com- 
pany, 91,  92 

American  Writing  Paper 
Company,  consolidated,  76 

Model  Manufacturing  Com- 
pany, account  form,  39 

Roj'al  Manufacturing  Com- 
pany, account  form,  60, 61 

The  Atchison,  Topeka,  and 
Santa  Fe  Railway  Com- 
pany— System,  93,  94 

The  Boston  Dry  Gooda 
Company,  54,  55 

The  Harmon-Streeter  Com- 
pany; account  form,  30, 31 

The  Willys-Overland  Com- 
pany and  Subsidiary  Com- 
panies, 78,  79 

U.  S.  Steel  Corporation,  con- 
solidated, 82,  83,  84,  85 

Westinghouse   Electric   and 
Manufacturing  Company, 
80 
certificate  of  condition,  to  be 

filed  by  Massachusetts  cor- 
porations, 73,  74,  75 
closing  journal  entries,  35,  36 

Model  Manufacturing  Com- 
pany, 42,  43 
income  account: 

American  International  Cor- 
poration, condensed,  53 

American  Writing  Paper 
Company,  77 

The  Atchison,  Topeka,  and 
Santa  Fe  Railway  Com- 
jmny — System,  95 


424 


INDEX 


Corporation  statements,  etc.: 
illustrative   forms: 

income    statement,    compara- 
tive : 
The     Boston     Dry     Goods 
Company,  56,  57 
profit  and  loss  statement : 
report  form.  Model  Manu- 
facturing Company,  40 
variation,  report  form.  The 
Harmon  -  Streeter     Com- 
pany, 33 
statement    of    cost    of    goods 
manufactured : 
Model  Manufacturing  Com- 
pany, 41 
supporting  schedules: 
analysis    of    cost    of    goods 
manufactured.   The  Oaks 
Manufacturing  Company, 
44 
analysis    of    cost    of    goods 
sold,   The   Craley   Furni- 
ture    Company,     depart- 
mental, 46 
analysis    of    operating    ex- 
penses, The  Copley  Man- 
ufacturing   Company,    47 
analysis  of  surplus,  49 
comi)arative      analysis      of 
o])erating  expenses: 
The    Boston    Dry    Goods 
Company,  50,  51 
f^urplus      account,      Amciican 
Writing  Paper  Company,  76 
trial    balance,    Model    Manu- 
facturing  Company,  37,  38 
])roblems: 

amalgamations    and    mergers, 

Nos.  104-107,  290-295 
bonds  and  sinking  funds,  Nos. 

115-123,  314-318 
changing    a   i)artnership   to    a 
corjioration,      Nos.      77-83, 
250-258 


Corporation  statements,  etc.: 
problems : 

cor|)orate  bond  issues,  Nos. 
84-«7,  259-260 

general,  Nos.  88-101,  261-274 

holding  companies  and  con- 
solidations, Nos.  108-114, 
29&-309 

liquidation,  Nos.  102-103, 
287-289 

opening  the  books  of  a  new 
corporation,  Nos.  63-76, 
241-249 

statements,    Nos.    10-16,    149- 
159 
theory  questions: 

corporate  stock  issues,  Nos. 
T-49  to  T-62,  279-283 

dividends,  Nos.  T-63  to  T-72, 
284-286 

general,  Nos.  T-36  to  T-48, 
275-278 

holding  companies  and  con- 
solidations, Nos.  T-73  to 
T-86,  310-313 


D 


Debts: 

inter-company,    elimination    of, 
297 
Depreciation  and  reserves: 
figuring  of,  328,  330 
problems,  Nos.  124-134,  325-332 
theory  questions,  Nos.  T-99  to 
T-113,  333-337 
Discounting      accounts      receivable, 

410 
Dividends : 

cumulative,  in  arrears,  270 
effect  of  profits  on,  249 
Dunn,  George  W.: 

balance   sheet,   report    form,   8, 

9,  10 
closing  entries,  15,  16,  17 


INDEX 


425 


Dunn,  George  W.:  " 

profit  and  loss  statement,  11,  12, 

13,  14 
trial  balance,  6 


E 


Expenses : 

capitalization  during  construc- 
tion period,  267 

classification  of,  13 

departmental,  summarized  anal- 
ysis of,  50,  51 

organization,  264,  265 


Federal  Reserve  Board: 

balance  sheet,  recommended  by, 

70,  71 
profit  and  loss  statement,  rec- 
ommended by,  72 
Financial  statements  and  reports: 
abbreviations,  4 
capitalization,  4 

divisions     of     financial     state- 
ment, 5 
form  of  balance  sheet,  5 
grouping  of  items,  4 
illustrative  forms: 
audit  report,  118-120 
banking,  64-67,  111-115 
certificate    of    condition,    73, 

74,   75 
condensed  statements,  88,  89, 

93,  94,  95 
consoUdations,   78-87,   91,  92, 

96,  97,  98 
corporation,  30-67,  76-77 
English     form     of     balance 

sheet,  62,  63 
Federal   Reserve   Board,   rec- 
ommended by,  70,  71,  72 
partnership,  18-29,  121,  123 
manufacturing,  39-60 
special  types: 

Arlington  Research  Club,  68 


Financial  statement  and  reports: 
illustrative  forms: 
special  types: 

Boston  City  Club,  105,  108 
The  Mutual  Insurance  Com- 
pany, 109,  110 
University  of  Chicago,  99- 
104 
sole  proprietorship,  6-17 
indentations,  4 
punctuation,  4 
problems : 
analysis  and  interpretation  of 
financial    statements,    Nos. 
45-62,  202-228 
corporation,  Nos.  10-16,  149- 

159 
manufacturing,     Nos.     17-25, 

160-175 
partnership,  Nos.  5-9,  136-148 
single  entry  records,  Nos.  26- 

34,  176-185 
single     proprietorship,      Nos. 

1-4,   127-135 
special  types,  Nos.  35-44,  186- 
201 
technique,  importance  of,  3 
theory  questions,   Nos.  T-1   to 
T-30,  229-236 
Freehold  property,  271 

G 

Good-will : 

how  to  value,  209,  261 

H 

Hall  and  Marvin: 

adjusting  journal  entries,  20,  21 
balance  sheet,  account  form,  30, 

31,  32 
balance  sheet,  report  form,  vari- 
ation, 25,  26 
closing  journal  entries,  29 
profit  and  loss  statement,  27,28 
trial  balance,  18,  19 
working  sheet,  22,  23,  24 


426 


INDEX 


Holding   companies   and   consolida-      Liquidation: 


tions: 
illustrative  forms  of  statements, 

58,  59,  78-85,  88,  89,  91,  92 
merger  of,  309 

problems,  Nos.  108-114,  296-309 
theory  questions,  Nos.  T-73  to 

T-86,  310-313 


Income : 

illustrative  accounts  and  state- 
ments: 
American    Locomotive   Com- 
pany, 90 
Northern  States  Power  Com- 
pany of  Delaware  and  Sub- 
sidiaries, 98 
U.  S.  Steel  Corporation,  86, 87 
The    Atchison,    Topeka,    and 
Santa    Fe    Railway    Com- 
panj^ — System,  95 
The  Mutual  Insurance  Com- 
pany, 110 
Installments : 

distribution  of,  362 
liquidation  by,  361 
Insurance : 

coinsurance  clause,  404 
Intcr-conipany  account,  297,  301 
Interest  : 

collected    in   ad\ancc    on    notes 
receivable,  how  treated,  131 


Joint  ventures,  consignments: 

problems,  Nos.  170-179,  377-384 
theory  questions,  Nos.  T-136  to 
T-140,  385-386 


Liquidation : 

bv  installments,  361 


distribution  of  jiroceeds  of,  288, 

289 
installments,  distribution  of,  362 
of  partnership,  358,  359,  360 

M 

Manufacturing  statements,  etc.: 
illustrative  forms: 
balance  sheet: 

account  form,  Model  Manu- 
facturing Company,  39 
double  account  form,  Royal 
Manufacturing  Company, 
60,  61 
closing  journal  entries,  Model 
Manufacturing      Company, 
42,  43 
profit    and    loss    statement, 
Model  Manufacturing  Com- 
pany, 40 
statement    of    cost    of    goods 
manufactured.  Model  Manu- 
facturing Company,  41 
supporting  schedules: 

see    "supporting    schedules" 
under  "corporation" 
problems : 
Nos.  17-25,  160-175 
Merger,  294,  295,  309 
Miscellaneous : 
problems : 
fire    loss    and    insurance    ad- 
justment, Nos.  190-199,  401, 
408 
suspense    items    and    adjust- 
ments,   Nos.    200-204.    409- 
412 
theory  questions,  Nos.  T-146  to 
T-165,  413-418 
Model  Manufacturing  Company: 
balance  sheet,  39 
closing  journal  entries,  42,  43 
profit  and  loss  statement,  40 


INDEX 


427 


Model  Manufacturiug  Company: 
statement     of     cost     of     goods 

manufactured,  41 
trial  balance,  37,  38 


N 


National  bank : 

balance  sheet,  111 
Newton  Mercantile  Company: 
balance  sheet,  121 
estimated    cash    or    credit    re- 
quirements, 123 
profit  and  loss  statement,  122 
Northern  States  Power  Company: 
consolidated  balance  sheet,  96, 

97 
consolidated     income     account, 
98,  99 
Notes  receivable  discounted: 

how  treated  on  balance  sheet, 
131 


Partnership : 

buying  an  interest,  351,  352 
changing  to  corporation,  entries, 

250,  251 
contributing  to,  353,  356 
illustrative  forms: 

adjusting  journal  entries.  Hall 

and  Marvin,  20 
balance  sheet.  Hall  and  Mar- 
vin, 25 
closing    journal    entries,    Hall 

and  Marvin,  29 
profit     and     loss     statement. 

Hall  and  Marvin,  27 
trial  balance.  Hall  and  Mar- 
vin, 18 
liquidation  of.  358,  359,  360 
problems : 

admission  of  a  partner,  Nos. 

141-151,  351-357 
dissolution     of      partnership, 
Nos.    152-155,   358-360 


Partnership : 
problems : 

liquidation    by    installments, 

Nos.  156-162,  361-366 
miscellaneous,    Nos.    163-169, 

367-373 
statements,  Nos.  5-9,  136-148 
selling  an  interest,  352,  353 
theory  questions,  Nos.  T-126  to 

T-135,  372-374 
transfer  of  interest,  356 
Potential  loss,  362 
Profit  and  loss  statement: 

classification  of  expenses,  13 
grouping,  12 
heading,  12 
illustrative  forms: 

comparative,     Boston     City 

Club,  105 
condensed,   U.   S.   Steel   Cor- 
poration, 88,  89 
consolidated,       Westinghouse 
Electric  and  Manufacturing 
Company  and  its  Proprie- 
tary Companies,  81 
corporation : 

Harmon-Streeter  Company, 

33 
Model  Manufacturing  Com- 
pany, 40 
Federal   Reserve   Board,  rec- 
ommended by,  72 
partnership : 

Hall  and  Marvin,  27 
Newton    Mercantile    Com- 
pany, 122 
sole     proprietorship,     George 
W.  Dunn,  11 
indentation,  13 
punctuation,  12 
underlining,  12 

variation  in  form  of  goods  sold 
section,  13 

R 

Real  estate: 

appreciation,  how  treated,  146 


428 


INDEX 


Realization  and  liquidation: 
account,  370 

loss  on  liquidation,  how  found, 
370 
Reconciliation  statement,  341 
Replacements,  330 
Reserves,  depreciation,  and  surplus: 
not  carried  on  books,  127,  129 
problems,  Nos.  124-134,  325-332 
shown  as  deductions  from  cor- 
relative  asset   accounts,   30 
theory  questions,  Nos.  T-99  to 
T-113,    333-337;    T-114    to 
T-125,  345-348 
"Rights": 

calculation  of  theoretical  value, 
267,  268 
Royal  Manufacturing  Company: 
balance  sheet,  60,  61 


Selling  agencies: 

problems,  Nos.  180-189,  387-396 
Single  entry  records: 

changing  to  double  entry,  179 
jiroblems     on     financial     state- 
ments, prepared  from,  Nos. 
26-34,   176-185 
theory  questions,  Nos.  T-31  to 
T-35,  237 
Sinking   funds: 

])roblems.  Nos.  115-123,  314-318 
tlicory  questions,  Nos.  T-87  to 
T-98,  319-321 
Sole  proprietorship : 
illustrative  forms: 
balance     sheet,     George     W. 

Dunn,  6 
profit     and     loss     statement, 

George  W.  Dunn,  11 
trial     balance.      George      W. 
Dunn,  6 
problems,  Nos.  1-4,  127-135 


Statements,  special  types: 

illustrative  forms: 

comparative  department  oper- 
ating,   Boston    City    Club, 
106 
condition,     a     Massachusetts 

savings  bank,  114 
receipts      and      expenditures, 
University  of  Chicago,  101, 
102,  103,  104 

problems,  Nos.  35-44,  186-201 
Stock : 

book  value: 
how  found,  202 
excess    over    purchase    price, 
307 

capital,  increase  of,  268 

defaulting  subscribers  to,  273, 
274 

donated,  sale  of,  245,  247,  253 

fluctuation,  in  market  value, 
how  treated,  146 

installment,  264,  273 

inter-company,  elimination  of, 
301 

minority  interest,  304 

no  par  value,  on  books,  243 

on  allotment,  how  handled,  246 

sale  at  public  auction,  273 

subscribed,  to  be  paid  later, 
how  treated,  242 

impaid  subscriptions,  realizing 
upon,  274 

vendors',  292 
Supporting   schedules: 

analysis  of  cost  of  goods  manu- 
factured, The  Oaks  Manu- 
facturing Company,  44 

analysis  of  cost  of  goods  sold, 
departmental,  The  Craley 
Furniture   Company,  46 

analysis  of  operating  expenses, 
The  Copley  Manufacturing 
Company,  47 

analysis  of  surplus  account,  49 


INDEX 


429 


Supporting  schedules: 

comparative    analysis    of    oper- 
ating expenses,  The  Boston 
Dry  Goods  Company,  50, 51 
Surplus : 

adjustments  and  analysis: 
problems,  Nos.   135-140,  338- 
344 
analysis  for  tax  purposes,  344 
theory  questions,  Nos.  T-114  to 
T-125,  345-348 
Suspense  account,  409 


The  Boston  Dry  Goods  Company: 
balance  sheet,  comparative,  54, 

55 
income  statement,  comparative, 
56,  57 
The  Harmon-Streeter  Company: 
closing  journal  entries,  35,  36 
])rofit    and    loss    statement,    re- 
])ort  form,  33,  34 
The   Mutual    Life   Insurance   Com- 
pany : 
balance  sheet,  109 
statement  of  income,   110 
The     Oaks     Manufacturing     Com- 
pany: 
analysis  of  cost  of  goods  manu- 
factured, 44,  45 
The  Willys-Overland  Company: 
balance  sheet,  78,  79 


U 


Uniform  systems  for  trade  associa- 
tions: 

list  of  those  who  have  adopted 
such,  116,  117 
United  States  Steel  Corporation: 

condensed  profit  and  loss  ac- 
count, 88,  89 

consolidated  balance  sheet,  82, 
83,  84,  85 

consolidated     income     account, 
86,  87 
University  of  Chicago: 

balance  sheet,  99,  100 

statement  of  receipts  and  ex- 
penditures, 101,  102,  103, 
104 


Vendors'  stock,  292 


W 


Westinghouse    Electric    and   Manu- 
facturing Company: 
consolidated  balance  sheet,  80 
consolidated    statement    of    in- 
come and  profit  and  loss,  81 
Working  sheet: 

illustration,  22,  23,  24 


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